Dispute Resolution Guide

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Guide for Drafting Dispute Resolution
Clauses Into Government Contracts

Produced by Dispute Resolution Services

Department of Justice, Canada

I. Introduction

This guide is intended as an aid for counsel when negotiating contractual agreements. Dispute resolution (DR) is fast becoming the way in which commercial disputes are handled, on both a national and international scale. In growing numbers, business is endorsing DR as an efficient, cost-effective way in which to resolve disputes while causing less disruption to their business operations. The Justice Department, in its effort to be a leader in the national system of justice, should meet this challenge by joining private business in the adoption of DR and by advising its clients regarding the variety of options available to them for resolving their legal conflicts in the most efficient and effective way possible. Dispute Resolution Services has been established to promote and implement the use of dispute resolution processes within the federal government.

Mr. Justice Zuber, in his report on the judicial system in Ontario, has characterized dispute resolution techniques as, "common sense procedures whereby the parties and their lawyers...are encouraged to come together in an informal setting and are then encouraged and assisted to narrow the issue, and if possible, to agree upon a resolution of either part or all of the dispute" [1]. These common sense procedures of which Justice Zuber speaks can go a long way towards reducing the considerable sum of money that the federal government spends on litigation each year and towards clearing court backlog.

Once counsel and client have decided that DR should be tried, what agreement between the government and the third party contractor should embody this decision? This Guide provides samples of dispute resolution clauses that can be incorporated into a new contract, as preventive medicine for future disputes, and dispute resolution agreements that can be entered into by disputing parties to an existing contract. It also provides descriptions and a checklist of the elements essential to any dispute resolution clause or agreement. The examples are meant to serve as templates only. It is expected that they be modified by counsel to include and reflect the particulars of a given business relationship. What is important to remember, however, is that the dispute resolution processes detailed here benefit from their simplicity and their flexibility. Attempts to make them more formalistic may detract from the spirit of cooperation and conciliation that can be created by the parties simply sitting down together to discuss a solution.

If you require further information about any of the processes discussed herein, please do not hesitate to contact Dispute Resolution Services at (613) 957-4643.

II. Definitions

Although there are numerous definitions in the literature detailing the varied processes that fall under the DR rubric, brief definitions of certain processes have been included for which sample clauses or agreements appear in this guide. For those seeking a more thorough discussion of the advantages and disadvantages of a given method, please refer to the paper "Dispute Resolution: Consider the Options " produced by Dispute Resolution Services and included in the Reference Guide. Reference can also be made to the practice modules in the Dispute Resolution Reference Guide.

A. Consensual Processes

1. Negotiation

Negotiation requires parties to bargain, exchanging information in an attempt to reach a solution. The method provides the advantages of both flexibility and informality. The parties can begin bargaining discussions at the outset of the dispute. Settlement discussions are controlled entirely by the parties and the dispute is resolved only by a solution satisfactory to all.

2. Mediation

Mediation is a cooperative process through which the parties seek a solution with the help of a neutral third party, the mediator. The mediator's role will vary from case to case. The mediator may simply moderate the negotiation process, keeping the discussions on track and the parties civil. Conversely, the mediator may take a very active role, proposing possible solutions, exploring parties' ulterior interests and making recommendations. The mediator does not, however, have the authority to compel the parties to reach an agreement. The presence of the mediator helps to minimize any inequality in bargaining power; and a mediator with expertise in the subject matter in dispute may further facilitate the resolution process.

3. Convening

Convening refers to an agreement by the parties to meet if and when a dispute arises to select, with the help of a neutral advisor, the dispute resolution process that will best suit the dispute at hand. During this convening session, the parties draw up the agreement that will govern their settlement process. In committing themselves at the outset of their contractual relationship to attempt an alternative form of dispute resolution without choosing the process to be used, convening maintains a greater flexibility for the parties to tailor their dispute resolution process to the circumstances.

4. Partnering

Within a contractual relationship, partnering establishes a formal, mutually developed strategy of communication and commitment under which the parties carry out the terms of their agreement. Partnering itself is not a contract, rather it is a recognition that every contract includes an implied covenant of good faith. The partnering process establishes a working relationship between the parties based upon the seven key elements of partnering: 1) commitment, 2) equity, 3) trust, 4) development of mutual goals and objectives, 5) implementation, 6) evaluation and 7) timely responsiveness. A primary benefit of this method is that it encourages project personnel to carry out their tasks efficiently and effectively by allowing decision-making and problem solving at the lowest possible level of authority. Although this may require a greater commitment of staff time to carry out the partnering process, the benefits can be a more harmonious contractual relationship, generally without litigation and other claims. The construction industry is said to be especially well-suited to the partnering process.

5. Early Neutral Evaluation

Early neutral evaluation allows the parties and their counsel to present their case to a neutral third party evaluator who has expertise in the subject matter of the dispute. The evaluator provides the parties with an assessment of the strengths and weaknesses of their cases and provides them with a non-binding opinion as to the likely outcome of the dispute should it proceed to trial. It provides the parties with a non-binding, neutral assessment of their dispute, preferably as early in the life of the dispute as possible, by an evaluator whose substantive expertise brings added credibility to the process. The goal of early neutral evaluation is to settle the dispute or at least to provide the parties with an objective perspective of their cases which will assist in making any further negotiations more productive and effective.

B. Non-Consensual Processes

1. Arbitration

Arbitration is a formal procedure governed by provincial and federal arbitrations laws. Parties submit to arbitration through a written agreement. The dispute is resolved by the intervention of one or several arbitrators who have been given decision-making authority. A panel of one to three arbitrators is recommended, depending upon the complexity of the case. Rarely are more than three arbitrators recommended. Panels of five or seven can be unwieldy and costly, detracting from the efficiencies to be gained by the process. Although more flexible than court proceedings, arbitration is subject to rules of procedure governing, among other things, the evidence that can be adduced, delays within which parties have to act and the authority of the arbitrator.

2. Binding Neutral Expert

Here the parties jointly select a technical expert to study the evidence and to resolve technically complex issues. The decisions of the neutral expert are binding on the parties as they resolve the remaining issues in dispute. The presence of the binding neutral expert can significantly speed up the resolution process by preventing potential battles between experts who represent opposing sides of the dispute.

C. Hybrid Processes

1. Med-Arb

Med-Arb is essentially a mediation process wherein the mediator has been given the authority to arbitrate any issues left unresolved by the mediation process. This option must be agreed to by all parties at the outset.

2. Mini-Trial

A voluntary, expedited, non-judicial procedure used generally in the commercial context. A panel, comprised of a senior executive from each party and one third-party neutral hears submissions from each side. The parties agree to a hearing schedule and rules concerning discovery, evidence, witnesses and the like that will govern the proceedings. Following the hearing, the neutral may make a non-binding recommendation regarding settlement of the case. The executives from the panel and their chosen advisors or other party representatives then attempt to negotiate a settlement based upon that recommendation. If no settlement is reached, the parties generally proceed to litigation.

III. Questions regarding the use of a dispute resolution process

A. When should I consider the use of a dispute resolution clause or agreement?

If you decide to incorporate an DR clause into a given contract, it is best to do so at the outset, when first negotiating the agreement. At this time, the parties are still on good terms and the early addition of an DR clause in the contract demonstrates the parties' willingness to work together, even if contractual problems should arise. Needless to say, it is also always easier to provide for such an eventuality before communication has broken down.

For those contracts already in operation, however, there is less flexibility. Is it feasible to discuss with the contractor an amendment to the contract which incorporates a dispute resolution clause? This would avoid having to make this decision once a dispute had arisen. Failing this, counsel should provide the client department with a variety of dispute resolution options from which the client can choose the method best suited to the dispute at hand. If the parties decide to begin with a method other than litigation, there are several sample agreements in this guide that the parties can use to embody this decision.

B. How comprehensive should a dispute resolution clause or agreement be?

Whatever method is chosen, make sure that the dispute resolution clause is as succinct as possible in the circumstances. The benefit of DR is largely derived from its simplicity. Long, wordy clauses that attempt to address every eventuality often create more problems than they resolve. Nevertheless, complex cases may require that a dispute resolution clause be more detailed. In the end, a balance must be struck between simplicity and the desire to reduce each step of the dispute resolution process at hand to writing to prevent potential disagreements.

C. Are dispute resolution clauses or agreements enforceable?

1. Is a Dispute Resolution Clause Enforceable?

Where a party to a contract containing an DR clause refuses either to participate in the resolution process or to honour a settlement agreement, enforceability becomes an issue.

First, is the agreement to submit to any of these processes enforceable? One of the earliest cases to address the binding nature of an agreement to arbitrate was Scott vs. Avery (1856) 10 All E.R. 1121, 5 HLC 811. Scott vs. Avery involved a dispute under a contract of insurance, which contract specified that any dispute over loss or damage should be resolved by arbitration and that no party should "be entitled to maintain any action at law or suit in equity on his policy until the matters in dispute shall have been referred to and decided by arbitration". [2] Appellant, in refusing to submit a claim to arbitration, argued that no party can enter into a contract which gives rise to a right of action for the breach of it and, by that contract, deny the courts jurisdiction to hear that action. The House of Lords, in acknowledging that this legal principle was indeed correct, distinguished the arbitration clause in the case at hand.

"Parties cannot by contract agree to oust the jurisdiction of the courts to deal with their rights under the contract, but a term in the contract which provides that, in the event of a dispute arising, it shall be referred to arbitrators whose award shall be a condition precedent to any right of action in respect of the matters to be referred is valid." [3]

Canadian courts have repeatedly affirmed the ruling in Scott vs. Avery, [4] to the extent that a clause requiring arbitration as a condition precedent to litigation is often called a "Scott vs. Avery clause". 5

In the federal context, Article 8(1) of the Commercial Arbitration Code 6 provides that,

"A court before which an action is brought that is the subject of an arbitration agreement shall, if a party so requests not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed."

The Code [7] further provides that arbitration clauses are severable from the contract to which they refer, to be treated as an independent contract in the event that the primary contract is found to be void or inoperable.

While arbitration clauses are now generally enforceable under caselaw, and provincial as well as federal arbitration acts, other methods are not governed by legislation. The courts, however, may be willing to uphold DR agreements, first as a contractual obligation; second by likening the DR agreement to an agreement to arbitrate, the latter being specifically enforceable; and third in recognition of the fact that public policy favours alternatives to litigation where these alternatives serve the interest of the parties and of judicial administration. [8]

2. Is the Resulting Agreement Enforceable?

Generally, negotiated agreements are enforceable on contract law principles. Nevertheless, as caselaw has indicated in the context of arbitral awards, the enforceability of agreements reached through other dispute resolution processes may be strengthened by the addition of a clause stating that the agreement is enforceable in a court of law. Under certain statutory regimes wherein a specific dispute resolution process is required (such as the labour law context), the enforceability of the agreement or decision that issues from that process may be expressly provided for by statute. [9]

D. What rights of appeal flow from a non-litigated resolution?

Because most dispute resolution processes are consensual in nature, there is no right of appeal. It is obvious that a party cannot appeal from a settlement that the party itself willingly entered. If that willingness or knowledge of a party is in question, or if a problem arises as to the implementation of the agreement, then recourse lies with the court, not as a matter of appeal but as a question of first instance under contract law.

Recourse against an arbitral award is expressly provided in the Commercial Arbitration Act. The Act provides in Article 5 that,

"In matters governed by this Code, no court shall intervene except where so provided in this Code."

Article 34 provides for recourse on specified grounds. The language of this Article is restrictive in providing that, "Recourse to a court against an arbitral award may be made only by an application for setting aside in accordance with paragraphs (2) and (3) of this article." Paragraph (2) allows a court to set aside an award where:

i) a party to the arbitration agreement is under some incapacity;

ii) the agreement is invalid under the applicable law;

iii) the party making application was not given proper notice or otherwise was not able to present its case;

iv) the award deals with a dispute not contemplated by or beyond the scope of the submission to arbitration;

v) the composition of the tribunal or the procedure was not in accordance with the agreement of the parties unless such an agreement was in conflict with a provision of the C.A.C.;

vi) the subject matter of the dispute cannot be settled by arbitration under the law of Canada; and

vii) the award is in conflict with the public policy of Canada.

Paragraph (3) requires that any application for recourse be made within three months of the date of receiving the award.

Articles 5 and 34 are, in effect, privative clauses. While it may appear that the restrictive language of these articles limits judicial review to the grounds identified, it is arguable whether this language precludes the Federal Court from exercising its supervisory jurisdiction under s.18.1 of the Federal Court Act. For example, in the event of an arbitral decision containing a material error of fact or law not supported by the evidence, an application for judicial review could be made and the court could find that intervention under s. 18.1 was warranted. The jurisprudence is clear in stating that the presence of a privative clause does not suffice to remove the supervisory jurisdiction of the court. Rather, the privative clause will assist in determining the standard of review that a court will apply. In Pezim v. B.C. (Superintendent of Brokers) [10], the Supreme Court of Canada clarified that, on judicial review, a court will no longer apply a single standard. Rather, there now exits a spectrum that ranges from unreasonableness where the deference of the court sitting in review is at its highest, to that of correctness, where the deference is lowest.

At the reasonableness end of the spectrum, where deference is at its highest, are those cases where a tribunal protected by a true privative clause, is deciding a matter within its jurisdiction and where there is no statutory right of appeal...At the correctness end of the spectrum, where deference in terms of legal questions is at its lowest, are those cases where the issues concern the interpretation of a provision limiting the tribunal's jurisdiction (jurisdictional error) or where there is a statutory right of appeal which allows the reviewing court to substitute its opinion for that of the tribunal and where the tribunal has no greater expertise than the court on the issue in question... [11]

This last point, "where the tribunal has no greater expertise than the court on the issue in question", demonstrates that the choice of arbitrator may have an effect on the attitude of a court of review. If the principle question to be decided is not one of law, but, for example, one of medicine, and the parties have chosen a physician as arbitrator, than a court of review may be more reluctant to intervene out of deference to the greater expertise of the arbitrator on the matter in question. Thus, it is all the more important that the parties select an arbitrator with expertise in the subject matter to be decided.

However, keep in mind that the court will strive to respect the intent of Parliament, as expressed in a privative clause, to preclude recourse against an award other than as expressly provided and may therefore be reluctant to intervene. [12]

The near finality of this process should be taken into account when deciding which dispute resolution avenue to follow. If one wants greater flexibility, then mediation or mini-trial may be better options. If arbitration is either chosen or required, it is crucial that the agreement to arbitrate, including the jurisdiction of the arbitrator(s), be carefully drafted to avoid an undesirable outcome with little chance of recourse. [13]

IV. Essential elements of a dispute resolution clause

What follows are general descriptions and samples of several of the more important elements of a dispute resolution agreement. This section is generic. The sample clauses are intended to be modified according to the circumstances of your particular case. Not every dispute resolution clause or agreement need contain each element and many of the more specific elements of a given clause or agreement are absent here, to be found instead in the following chapter of more detailed sample agreements for specific processes. Please note that counsel at the Dispute Resolution Project and Justice litigators are always available to consult with you when a particular dispute resolution clause requires more attention than usual to procedural matters.

A. Appointment of Neutral

How will the neutral or neutrals be selected? It is common practice for the parties to choose a neutral together, with a fallback position providing for a specified third party (such as a professional arbitration/mediation organization or a judge) to select the neutral in the event that the parties cannot agree within a specific time. Whatever the method chosen, it should be detailed in the clause. Once appointed, the neutral generally enters into a separate contractual arrangement with the parties for the provision of his/her services. This contract can be drafted as required.

"The parties have selected ________ as arbitrator [or other neutral]."

"The parties agree to mutually select an arbitrator. If the parties cannot agree on the choice of arbitrator within _____ days from the date of signing this Agreement, [option a.] then they will each select an arbitrator who will in turn select a third. [or option b.] then an application will be made to the _______ court to select an arbitrator. [or option c.] then an arbitrator will be chosen, upon application, by the [insert name of DR organization / centre / professional association]."

NOTE: Option a., above, should be restricted to arbitration as it is the only process in this Guide where a panel of neutrals is an option. Options b. and c. can be used, with modification, for any process.

B. Cost of Neutral

In most dispute settlement proceedings, the cost of the neutral(s) is borne equally by the parties. Cost here is meant to include fees as well as incidental expenses. The parties must obviously agree to a cost-sharing arrangement that best suits them and expressly provide for it in the clause or agreement. As neutrals' fees may vary widely, parties should also discuss what they are willing or able to pay.

"All expenses and fees of the [mediator, arbitrator, etc.], and all expenses of the hearing facilities, neutral experts, and other expenses of the [resolution process] shall be borne equally by the parties. Each side shall bear its own counsel fees and expenses."

C. Powers of Neutral

A neutral can play a wide variety of roles from that of mere facilitator, arranging meeting times and rooms and keeping settlement negotiations on track, to that of adjudicator, rendering a binding decision. Generally, each process implies inherent powers for the neutral (a mediator, for example does not have the authority to render a decision, whereas an arbitrator or a neutral expert does). Yet the personality or style of any given neutral will also affect the role that s/he plays. It is very important, therefore, to specify what role the parties expect the neutral to play.

When deciding how much power the parties wish to vest in the neutral, they should consider the nature of the dispute, the degree of conflict between the parties (is constructive negotiation possible? does it need the help of a strong, intervening mediator or merely the occasional help of a facilitator?), and the qualifications of the neutral. For example, where the dispute is highly technical and the neutral is a technical expert, the parties may well need to rely upon decisions by the neutral to resolve an impasse in conflicting interpretations of the technical evidence.

In the case of an arbitration, for example, the parties may also want to include or exclude certain remedies within the authority of the arbitrator, or otherwise limit his jurisdiction.

"The arbitrator shall have the authority to award any remedy or relief that a court of this province could grant."

"The arbitrator will have no authority to grant [eg. specific performance, punitive damages, etc.]."

D. Procedural Rules, Timetable, Notice

Escalation of the dispute may be avoided by clarifying certain procedural rules within the clause or agreement. With respect to notice, if the parties intend to invoke an DR process, how should they let the other party know, within what time frame, to what representative of the party.

"The parties hereby designate the following named representatives to act on each party's behalf in the event of a controversy or claim relating to this contract, [name, title] and [name, title]. These persons shall each be known as a "party representative".

"If a dispute relating to this contract should arise, the parties shall promptly notify each party representative, either in person or by registered mail, of the existence of this dispute, for their consideration."

With respect to delays, taking into consideration the nature of the dispute and the identity of the parties, what should be the timetable for service, for the selection of a neutral, for discovery and for settlement negotiations. The timetable for actual negotiations is particularly important in the event that a party wishes to resort to another settlement process (be it the courts or, with a multi-step clause, another DR procedure). How long should the parties be bound to attempt settlement through the chosen procedure before they can conclude that it has failed and move on the something else. This timing is quite dependant upon the circumstances of the case and the relationship between the parties.

"Any party may commence settlement proceedings by written request through registered mail to the party representative of the other party. Unless otherwise agreed, an initial meeting between the parties shall take place within "X" days of the receipt of that notice to discuss settlement options."

"In the event that the parties are unable to resolve the dispute within thirty days of the initial settlement meeting, then they shall refer the dispute to [select a process].

The fundamental rules of procedure that are relied on so heavily in litigation do not exist for most other methods of dispute resolution (even arbitration lacks a set of uniform rules at the federal level). The settlement process will be much smoother if these details are spelled out.

E. Discovery and Exchange of Information

The lack of rules regarding discovery can be a major impediment to a satisfactory settlement process. Lessons learned from certain federal arbitrations to date reveal that the absence of discovery rules can significantly hamper the efficient and satisfactory resolution of the disputes. It is crucial that, where there is provision for discovery, a timetable be established, ending in sufficient time before the negotiation or hearing date for the parties to assimilate the information provided; and that the parties agree to provide information in a spirit of mutual cooperation. The latter is important given that, in all processes except arbitration, the neutral does not have the power to compel a party to produce evidence. [14]

" The parties agree to an exchange of all information upon which a party intends to rely in any oral or written presentation during the dispute resolution [or mention name of the specific method] process. This exchange shall be complete no later than "X" weeks prior to the date set for the [name the process]."

Depending upon the nature of the case and the complexity of the information at hand, the parties may wish to provide for additional discovery, such as:

"Each party shall be permitted to examine the other party's books and records, on site at the latter party's place of business, and during business hours."

"Each party shall be permitted to examine [two, "X"] key personnel of the other party. The person to be examined will make a good faith effort to be available for such discovery. The examination must be complete no later than "X" weeks prior to the date set for the ."

"The parties shall be entitled to discover all information necessary for a full understanding of any legitimate issue raised in the [process] . The parties may use the following methods for discovery: . The delays for compliance shall be set by the neutral [OR] shall be mutually agreed to by the parties."

F. Confidentiality

Unlike litigation, negotiations and information produced during most DR procedures are not a matter of public record. The confidential nature of DR is a compelling component for many parties. The private nature of communications made during most DR processes fosters the atmosphere of trust essential to the parties' voluntary participation. Even with those processes more akin to formal adjudication, such as arbitration, mini-trials and binding neutral evaluation, the parties' willingness to offer candid and complete disclosure is a reflection of the confidence in which that information is disclosed.

Confidentiality is also an important component of the success of the neutral. If the neutral could be compelled by a party to testify in subsequent court proceedings regarding information revealed during prior negotiations, then the parties' trust in the neutral and indeed in the entire process, could be seriously diminished. [15]

Confidentiality does not, however, act as a bar to future discovery or admission of evidence that is otherwise discoverable. The fact that information has emerged during a DR procedure will not, in and of itself, prevent it from being admissible or discoverable in the normal course of subsequent litigation. Rather, confidentiality acts as a form of encouragement for frank communication, as currently exists within the protection of settlement negotiations during the litigation process.

Although it is generally the role of the neutral to discuss the nature and limits of confidentiality of the proceedings with the parties at the outset, it is good practice to specify in the clause or agreement that information revealed during negotiations or discovery is confidential and may not be used against a party during subsequent litigation. Note,

"All information exchanged during this entire procedure shall be regarded as "without prejudice" communications for the purpose of settlement negotiations and shall be treated as confidential by the parties and their representatives. However, evidence that is independently admissible or discoverable shall not be rendered inadmissible or non-discoverable by virtue of its use during the [name of process]."

Notwithstanding a confidentiality clause, when the federal government is a party, the Access to Information Act and Privacy Act must be examined to determine the extent to which they restrict disclosure and withholding of information. Please refer to the document, "Confidentiality: Access to Information Act and Privacy Act " contained in this Reference Guide.

G. Location

Where will the settlement process be held? Do the parties want a neutral location? If so, it should be as equally accessible to all as possible. If they can agree to meet at the premises of one of the parties, this can cut down on the costs of the proceeding. Should the surroundings be formal or informal and how will this affect the cost of the proceeding? What facilities, such as a transcription service, telephones, fax, etc., need to be provided for?

"The process shall be held in city, province , at a neutral location to be mutually selected by the parties [OR], at the offices of ."

"The meeting place shall be equipped with , the cost of which shall be borne equally by the parties."

H. Governing Law Clause

The parties may wish to specify the laws that will govern the contract or dispute settlement proceedings. This is particularly important if the contract is to be signed in one province, carried out in another, with the headquarters and assets of the private contractor in yet a third province, or country. With respect to enforcement, the laws of the jurisdiction where enforcement is sought generally governs the request.

In the case of arbitration, the Commercial Arbitration Act [16] and the annexed Commercial Arbitration Code [17], expressly provide that the Act and Code are binding upon the federal crown, where the arbitration takes place in Canada. The Act and Code do not contain a complete set of procedural rules. Rather, the Code expressly states that the parties are, subject to the provisions of the Code, free to agree on the procedure to be followed [18], and free to determine the laws that will govern dispute [19].

"This dispute resolution process shall be conducted in accordance with the laws of .

"The arbitration shall be conducted in accordance with [the rules agreed to by the parties, as set forth in Annex A, below; OR the UNCITRAL Rules for commercial arbitration, OR, the Rules of the name of DR organization / centre / professional association]."

I. Immunity and Compellability of the Neutral

It is becoming standard practice to provide that the neutral will be held immune from subsequent civil actions by the parties resulting from his/her role as a neutral in the original dispute. Although such subsequent actions are an unlikely occurrence, the inclusion of an immunity clause allows the neutral to supervise the settlement of the dispute as they judge best without fear of the consequences.

"The parties agree to hold harmless the (ex. mediator/arbitrator) from any civil or criminal liability arising from the conduct of the (ex. mediator/arbitrator) during this course of the settlement process, except for liability arising from wilful misconduct."

It is also standard practice to include a clause preventing the neutral from providing evidence against either of the parties in subsequent proceedings.

"It is agreed that the neutral will neither represent nor testify on behalf of any of any of the parties in any subsequent proceeding between them. It is further agreed that the personal notes and written opinions of the neutral made in relation to this (DR process) may not be used in any subsequent proceeding between the parties."

J. Enforceability

a. of the Clause

As explained in section III., above, Canadian courts may enforce the provisions of a valid dispute resolution clause. If the parties also specify, however, that the dispute resolution clause or agreement must be exercised before other remedies are invoked, it may decrease the likelihood that enforceability of the clause will be challenged in court.

"The parties agree that a complete and good faith attempt by the parties to resolve the dispute through [a dispute resolution process; eg. a referral to arbitration] shall be a condition precedent to any right of action at law for the dispute in question."

b. of the Resulting Agreement or Arbitral Award

In the case of arbitration, Article 35 of the Commercial Arbitration Code provides that,

"An arbitral award, irrespective of the country in which it was made, shall be recognized as binding and, upon application in writing to the competent court, shall be enforced subject to the provisions of this article and of article 36."

Article 36 provides standard grounds for refusal to enforce based on incapacity of a party, excess of jurisdiction, insufficient notice to an affected party, a subject not capable of settlement by arbitration under the laws of Canada, or a subject contrary to public policy.

In the case of mediation and other processes, a settlement, once reduced to writing and signed, becomes enforceable on contractual grounds.

K. Who Will Represent the Parties

In drafting a dispute resolution clause or agreement, one must contemplate who will represent the parties in the dispute resolution process. Although actual persons need not be designated, it is helpful to draft an agreement wherein the individuals likely to be undertaking the settlement process have the knowledge and authority appropriate to the mechanism chosen. For example, do you envision negotiations beginning at the field level? with the project managers? with a director? In the case of a multi-step agreement, several individuals will be designated as representatives through a succession of settlement attempts. Depending upon the avenue chosen, draft the agreement so that the officer likely to be involved in the process has the knowledge and authority required to carry out the task effectively.

L. Authority to Settle

Again, the dispute resolution process will only be as good as the authority of the representatives to bind their parties. If the representative lacks that power, then provisions should be made in the agreement for ratification of the settlement by the higher authority. In the government context, many settlements reached through DR may have to be authorized by a senior official. Express provision should be made whereby this authorization is obtained rapidly. Otherwise, a conditional settlement may grow stale and be abandoned by the other party for lack of apparent commitment on the government's behalf.

V. Sample clauses

A. Mediation

MEDIATION CLAUSE

"If a dispute relating to this contract should arise, and the parties cannot settle this dispute through negotiation, then the parties agree to attempt in good faith to resolve the dispute through mediation [option: as administered by the (insert name of DR organizaton / centre or professional association)], before resorting to litigation or other procedure."

MEDIATION AGREEMENT

An agreement to submit an existing dispute to mediation can be embodied in the following agreement:

"1. Agreement to Submit . We, the undersigned parties, agree to submit the controversy regarding [DESCRIBE BRIEFLY] to mediation.

2. Selection of Mediator.

[Option] The parties have selected ________ as mediator.

[Option] The parties agree to mutually select a mediator. If the parties cannot agree on the choice of mediator within _____ days from the date of signing this Agreement, [option a.] then an application will be made to the _______ court to select an mediator. [or option b.] then a mediator will be chosen, upon application by the parties, by the [insert name of DR organization / centre / professional association].

3. Location. The mediation shall be held in Ottawa, Ontario at the premises of .

4. Discovery. The parties agree to an exchange of all information upon which they intend to rely in any oral or written presentation during the mediation. This exchange shall be complete no later than ten (10) days prior to the date set for the mediation.

5. Costs. The parties agree that they will each be responsible for the costs of their own legal counsel and personal travel. Fees and expenses of the mediator and all administrative costs of the mediation, such as the cost of the hearing room, if any, shall be borne equally by the parties.

6. Schedule. The parties shall jointly select a date for the mediation that is no later than _____ days from the date of this agreement.

7. Termination of Agreement. Either party may terminate this agreement at any time during the mediation.

8. Confidentiality. All information exchanged during this entire procedure shall be regarded as "without prejudice" communications for the purpose of settlement negotiations and shall be treated as confidential by the parties and their representatives, unless otherwise required by law. However, evidence that is independently admissible or discoverable shall not be rendered inadmissible or non-discoverable by virtue of its use during the mediation.

9. Caucusing. The mediator is free to caucus with the parties individually, as he sees fit to improve the chances of a mediated settlement. Any confidential information revealed to the mediator by one party during such caucusing may only be disclosed to the other party(ies) with the former party's express permission.

10. Prohibition against Future Assistance. It is agreed that the mediator will neither represent nor testify on behalf of any of the parties in any subsequent legal proceeding between the parties or where they are opposed in interest. It is further agreed that the personal notes and written opinions of the mediator made in relation to this mediation are confidential and may not be used in any subsequent proceeding between the parties or where they are opposed in interest."

B. Convening

CONVENING CLAUSE

"In the event of a dispute arising under the terms of this contract, the parties agree to make a good faith attempt to settle the dispute. The dispute resolution process or processes to be followed will be selected by the parties with the help of a neutral convenor, once the dispute has arisen."

"The parties agree to select a neutral convenor jointly. In the event that they cannot agree upon the choice of a neutral within thirty (30) days, then that neutral shall be chosen by [insert name of DR organization / centre / professional association]. The fees and expenses of the neutral shall be borne equally by the parties. The neutral will convene the parties as soon as is practicable to assist them in evaluating available dispute resolution processes and in selecting the process or series of processes that will best suit the dispute at hand."

"The parties agree that a complete and good faith attempt to resolve the dispute through a dispute resolution process as chosen with the help of a convenor shall be a condition precedent to any right of action at law for the dispute in question. If the parties cannot resolve the dispute by the process chosen within three months [or other time frame depending on the nature of the contract] of the convening meeting, then any party is free to submit the dispute to a court having jurisdiction thereof."

C. Partnering

Although partnering has been most frequently used in the construction industry, it will work in many other contractual situations, provided it has the commitment of all the parties involved. The intention to explore partnering with the contractee should be broached as early as possible in the relationship. Even within the initial request for proposals or bids, it can be made clear that the Department or Agency would like to establish such a relationship with the successful bidder. Once the contract has been awarded, a partnering meeting should be held to define the terms of the relationship, the role of each staff member involved and to discuss the problem-solving methods to be used. A facilitator may be helpful at this stage to provide training in conflict management and to predict problem areas. A periodic review by the participants of the effectiveness of the process will also help ensure that it runs smoothly.

The sample partnering agreement that follows does not embody any truly new ideas. Rather, it is ensuring the return of a fundamental commitment of good faith dealings to the way in which we do business. This agreement is based in part upon a sample provided by the Associated General Contractors of America.

PARTNERING AGREEMENT:

"We, the undersigned, are a team committed to providing a quality product in accordance with the terms of the contract (Identify). We agree to make a good faith effort to accomplish the following objectives:

A. COMMUNICATION OBJECTIVES

1. To address each other in a forthright and professional manner;

2. To maintain open and honest communication;

3. To resolve problems within the terms of the contract;

4. To make decisions at the lowest, most appropriate level;

5. To give timely notification of future meetings;

6. To hold regular meetings to assess the progress of the contract and the effectiveness of the partnering process.

B. CONFLICT RESOLUTION OBJECTIVES

1. First, conflict should be addressed and a resolution attempted at the level at which it originated;

2. Second, where conflict is not resolved at the originating level, it will be addressed by the next higher level of supervision;

3. Third, where the conflict is not resolved by step two, then it shall be taken to the project managers for resolution;

4. Finally, if step three is to fail, the dispute shall be settled in accordance with the dispute resolution terms of the contract (It is in keeping with the spirit of partnering to combine it with dispute resolution provisions in the main contract).

C. PERFORMANCE OBJECTIVES

1. Complete the project without litigation;

2. Minimize delays and finish project on time;

3. Minimize all unnecessary costs;

4. Ensure public and employee safety on project site;

5. Promote good public relations regarding project;

6. Administer contract so that all parties are treated fairly."

D. Arbitration

Due to its widespread use in the commercial context, arbitration has engendered a variety of procedural rules to assist parties at the pre-hearing, hearing and post-hearing stages. The parties are entirely free, however, to determine the rules of procedure that will govern their particular arbitration, or to adopt one of the several existing regimes. For domestic disputes, there are no rules at the federal level, although the Commercial Arbitration Code [20] does specify many of the steps that should be addressed during an arbitration. Article 19 of the Code expressly states that the parties are free to choose the procedural rules that will govern the arbitration, subject to the provisions of the Code. [21]

In January 1993, Treasury Board issued a new Policy Notice [22] vastly expanding the government's ability to use arbitration as a means of settling commercial contract disputes. Departments and agencies may now use arbitration for any dispute of fact or of law without prior permission, save for disputes involving a question of public law (constitutional, tax, criminal or administrative), which requires the express permission of the Senior Assistant Deputy Minister of Justice, Legal Services, before submitting to arbitration. A general direction, dated April 15, 1993, on the use of arbitration has been issued by the Senior Assistant Deputy Minister, Legal Services, to assist counsel on the use of arbitration and to outline when approval is still required to arbitrate.

In the international context, the UNCITRAL rules ("United Nations Convention on International Trade Law") provide important procedural guidelines as do the International Arbitration Rules of the American Arbitration Association. The enforcement of international arbitral awards is addressed by the 1985 U.N. Convention on the Recognition and Enforcement of Foreign Arbitral Awards and by the Inter-American Convention on International Commercial Arbitration. Canada has adopted the United Nations convention on enforcement of foreign arbitral awards through the United Nations Foreign Arbitral Awards Convention Act [23].

ARBITRATION CLAUSE:

"Any claim or dispute arising out of or in connection with this contract shall be submitted by the parties to binding arbitration pursuant to the Commercial Arbitration Act. The party requesting such arbitration shall do so by written notice to the other party/parties. The costs of the arbitration and fees of the arbitrator[s] shall be borne equally by the parties. The arbitration shall take place in [city], Canada, before a single arbitrator to be chosen jointly by the parties. If the parties cannot agree on the choice of arbitrator within thirty (30) days of written notice to submit to arbitration, then [EITHER: the arbitrator shall be chosen by the _____________ [insert name of DR organization / centre / professional association] [OR: the parties shall each choose an arbitrator who in turn will select a third]."

"The parties may determine the procedure to be followed by the arbitrator[s] in conducting the proceedings, or may request the arbitrator[s] to do so. The arbitrator[s] shall issue a written award within thirty (30) days of completion of the hearing. The award shall be rendered in such form that judgment may be entered thereon in any court having jurisdiction."

ARBITRATION AGREEMENT

An agreement to submit an existing dispute to arbitration can be embodied in the following agreement:

"1. Agreement to Submit . We, the undersigned parties, agree to submit the controversy regarding [DESCRIBE BRIEFLY] to binding arbitration pursuant to the Commercial Arbitration Act. [24]

2. Selection of Arbitrator.

[Option] The parties have selected ________ as arbitrator.

[Option] The parties agree to mutually select an arbitrator. If the parties cannot agree on the choice of arbitrator within _____ days from the date of signing this Agreement, [option a.] then they will each select an arbitrator who will in turn select a third. [or option b.] then an application will be made to the _______ court to select an arbitrator. [or option c.] then an arbitrator will be chosen, upon application by the parties, by the [insert name of DR organization / centre / professional association].

3. Location. The arbitration shall take place in Ottawa, Ontario, at the premises of .

4. Rules of Procedure. The arbitration of the dispute described in this Agreement shall be governed by:

a) the rules of procedure set forth in Annex X to this Agreement (the "Rules"); and

b) except to the extent that it may be inconsistent with the Rules, the Commercial Arbitration Code (the "Code"), S.C. 1986, c. 22.

5. Discovery. The parties agree that discovery shall be conducted in accordance with the [option a.] rules as agreed by the parties as set forth in appendix A to this Agreement. [option b.] rules of the ________ court. [option c.] rules of the [insert name of DR organization / centre / professional association].

6. Costs. The parties agree that they will each be responsible for the costs of their own legal counsel and other costs incurred in preparing each party's case for arbitration. The administrative costs of the arbitration, such as the expenses and fees for the arbitrator, the cost of the hearing room, if any, shall be borne equally by the parties. Each party shall be solely responsible for payment of the fees and expenses for its own counsel and witnesses.

7. Schedule. The arbitral proceedings will commence on the day following the first day on which the arbitrator(s) has (have) been chosen. The arbitrator(s) shall make every reasonable effort consistent with article 18 of the Code to complete the proceedings and render the award within [ex. six months] of the commencement date. If the arbitrator(s) fails to do so, then the parties may, on mutual consent, dismiss the arbitrator(s) and agree on another form of dispute settlement.

7.1 For the purpose of article 23(1) of the Code, the deadline for the submission of the claimant's statement of facts, issues in dispute and remedies sought shall be [ex. four] weeks from the commencement date. The deadline for submission of the respondent's statement of defense shall be [four] weeks following receipt by respondent of claimant's submission.

7.2 The parties shall jointly select a date for the hearing that is no later than _____ days from the date following the submission of respondent's statement of defense. The arbitral award shall be in writing and shall include reasons for the decision.

8. Governing Law Clause. The arbitrator(s) shall resolve this dispute in accordance with the laws of [ex. Ontario] .

9. Judgment. Judgment upon any arbitral award rendered may be entered in any court having jurisdiction thereof.

10. Prohibition against Future Assistance. It is agreed that the arbitrator(s) will neither represent nor testify on behalf of any of the parties in any subsequent proceeding between the parties. It is further agreed that the personal notes and written opinions of the arbitrator(s) made in relation to this arbitration are confidential and may not be used in any subsequent proceeding between the parties.

12. Confidentiality. All information exchanged during this entire procedure shall be regarded as "without prejudice" communications for the purpose of settlement negotiations and shall be treated as confidential by the parties and their representatives, unless otherwise required by law. However, evidence that is independently admissible or discoverable shall not be rendered inadmissible or non-discoverable by virtue of its use during the arbitration."

If the parties to an existing dispute cannot agree to the rules of procedure that will govern the arbitration, [25] then they can submit to the specifications found in the Commercial Arbitration Code, attached as a Schedule to the Act, or to one of the procedural regimes provided by the private arbitration associations. The Code, for example, provides that, in the event that the parties do not agree, a court will select three arbitrators and the arbitrators will select the venue and the rules of procedure for the hearing. Such default provisions are important in seeing parties past an impasse.

You may also want to refer to the model arbitration agreements produced by the International Chamber of Commerce (ICC), by the United Nations Commission on International Trade Law (UNCITRAL), and by the American Arbitration Association. All of these models have been used extensively on the international commercial level.

E. Binding Neutral Expert

The binding opinion of a neutral expert is best employed for specific, technical questions which may or may not form part of a larger dispute. The parties can agree to abide by the decision of the expert, after a presentation from each party on the issue, saving the remaining matters in dispute, if any, for trial of another ADR process.

AGREEMENT TO SUBMIT TO BINDING DECISION OF NEUTRAL EXPERT

"The parties hereby agree to submit the resolution of the issues named below to the binding decision of a neutral expert:

[Itemize the issue(s) to be resolved]

"The parties agree to select a neutral expert jointly. In the event that the cannot agree upon the choice of a neutral within thirty (30) days, then that neutral shall be chosen by [an individual or dispute resolution organisation]. The fees and expenses of the neutral expert shall be borne equally by the parties."

"The expert shall select a mutually convenient time and location for an informal hearing on the issue(s) to be decided. During this hearing, the parties shall give both an oral and a written submission to the expert. All documents on which a party intends to rely during this presentation shall be made available to the other party(ies) no less than ten days [or other time frame depending on the complexity of the issue(s)] prior to the date of the hearing."

"The expert shall have fifteen days [or other] from the date of the hearing to render a decision on the issues in dispute. This decision shall be in writing, including reasons for decision. This decision shall be binding upon the parties."

F. Med-Arb

It is not uncommon for the parties to agree to submit a dispute first to mediation, providing that those issues that remain unresolved by mediation will be then submitted to arbitration. This dual process is known as "med-arb".

MED-ARB CLAUSE

"The parties agree to submit any controversy or claim arising under this agreement to mediation [Option: as administered by the (insert name of DR organization / centre / professional association)]. The parties will bear the cost of mediation equally. In the event that one or more issues remain in dispute following completion of the mediation, then the parties agree to submit those issues to binding arbitration pursuant to the Commercial Arbitration Act."

G. Mini-Trial

Mini-trials are well-suited to contractual disputes, however they have not yet been widely used in Canada. The term, "mini-trial" is somewhat misleading. The fundamental element of a trial, a binding determination of contested factual and legal issues, is missing. Rather, there is a brief, formally structured presentation of each party's case before a panel of senior executives from each of the parties and a neutral. The settlement recommendation from that neutral is then food for subsequent settlement discussions between the parties. A sample agreement for the services of a neutral is included in this paper and may be used by the parties in combination with the Mini-Trial Agreement.

An important element in a successful mini-trial is an adequate understanding of the relative merits of each party's case, including one's own. It is at this point that the best climate for negotiating a settlement will occur. In drafting the mini-trial agreement, it is thus important to consider the extent of information exchange between parties that will be required prior to the mini-trial itself. Requiring the exchange of all information upon which a party intends to rely during its mini-trial presentation is a straight forward way to begin.

MINI-TRIAL AGREEMENT

BETWEEN Her Majesty the Queen in Right of Canada

AND __________________________ (the "Contractor")

Whereas Her Majesty and the Contractor are parties to a contract dated _________, and identified as ________________ (the "Contract"); and

Whereas a dispute has arisen between the parties concerning the Contract; and

Whereas the parties wish to attempt to resolve this dispute through a mini-trial;

Therefore the parties agree as follows:

"1. The Mini-Trial shall be conducted pursuant to the procedural rules [Option] agreed to by the parties and set forth in Annex X of this document [Option] of the name of DR organization / centre / professional association.

2. The Mini-Trial shall be conducted before a panel composed of one senior executive officer of each party who has settling authority to resolve the dispute ("designated party representative"), and one neutral advisor. The neutral advisor shall act as chair of the panel.

3. The neutral advisor shall be chosen jointly by the parties. If the parties cannot agree upon the choice of a neutral within twenty days of the signing of this Agreement, then that neutral shall be chosen by the ________________ [inser name of DR organization / centre / professional association]. Any party may promptly disclose to the other any circumstances known to it which cast reasonable doubt upon the neutrality of the advisor chosen by the _____________. Unless all parties agree otherwise, that neutral will not serve on the panel and a new one will be chosen.

3.1 The parties shall equally bear the costs of the neutral advisor.

4. The Mini-Trial shall be conducted at [place], in [city], Canada, within [eg.90] days of the signing of this Mini-Trial Agreement.

5. [X, eg. 30] days prior to the date set for the Mini-Trial, each party undertakes to provide all other parties and the neutral advisor with copies of all documents upon which that party intends to rely during the Mini-Trial, with a copy of any written brief or position paper summarizing the party's position in the dispute, and a list of all witnesses to be called, if any and the name of the senior executive that will sit on the panel with the neutral advisor.

6. If any litigation between the parties regarding this same dispute is pending, the parties shall (EITHER) pledge to take no new steps in the legal proceedings while the mini-trial is in progress (OR) jointly request a stay of those proceedings pending the outcome of this Mini-Trial (this option may be used where the litigation is at such stage where, to take no new legal steps for the duration of the mini-trial would adversely effect the legal position one of the parties).

7. During the hearing, counsel or a designated representative from each party will present its case to the panel, with time for rebuttal, question period for the panel and the parties and closing remarks as follows:

[Schedule with time for each presentation specified, according to the needs of the dispute at hand, (eg. 9:00 - 10:00 Her Majesty's Case; 10:00 - 11:00 Contractor's Rebuttal, etc.) (Mini-Trials may last anywhere from a matter of hours up to several days).]

8. There shall be no recording of the proceedings made.

9. Within [X] days of the close of the hearing, the neutral shall render a non-binding opinion as to the resolution of the dispute.

10. Within ten days following receipt of the neutral's opinion, the designated party representatives shall meet to negotiate a resolution of the dispute. If the parties agree, other party representatives or the neutral advisor may be present at those negotiations.

11. All information exchanged during this entire procedure shall be regarded as "without prejudice" communications for the purpose of settlement negotiations and shall be treated as confidential by the parties and their representatives, unless otherwise required by law. However, evidence that is independently admissible or discoverable shall not be rendered inadmissible or non-discoverable by virtue of its use during the mini-trial.

12. It is agreed that the neutral advisor will neither represent nor testify on behalf of any of the parties in any subsequent proceeding between the parties. It is further agreed that the personal notes and written opinions of the neutral made in relation to this mini-trial are confidential and may not be used in any subsequent proceeding between the parties.

13. The Mini-Trial proceedings shall be deemed terminated either: (a) upon execution of a written settlement between the parties, or (b) upon the forty-fifth (45) day following conclusion of the Mini-Trial hearing, which date can be extended by mutual agreement of all the parties, or (c) upon receipt by the neutral advisor of written notice of withdrawal from one or more of the parties; whichever occurs first."

H. Multi-Step Clauses

MULTI-STEP CLAUSE: NEGOTIATION-MEDIATION-ARBITRATION

"In the event of a dispute between the parties arising out of this agreement, the parties agree to use the following procedure prior to pursuing any other legal remedy:

1. Promptly following the onset of the dispute, a meeting shall be held between the parties, attended by senior individuals with decision-making authority, to attempt in good faith to negotiate a resolution.

2. If, within thirty (30) days after this meeting the parties have failed to resolve the dispute, they agree to submit the dispute to mediation and to equally bear the costs of that mediation.

a) The parties will jointly select a mediator. If, after thirty (30) days, the parties are unable to agree upon the choice of mediator, then a mediator will be chosen by _______________ [insert name of DR organization / centre / professional association].

b) The parties agree to participate in good faith in the mediation process for a period of __________ [thirty, forty five, sixty, etc., depending upon the complexity of the dispute] days.

3. If the mediation is unsuccessful then the parties will submit the dispute to binding arbitration pursuant to the Commercial Arbitration Act.

a) The parties will jointly select an arbitrator. If, after thirty (30) days, the parties are unable to agree upon the choice of arbitrator, then one will be chosen, upon application of the parties, by _______________ [insert name of DR organization / centre / professional association]."

MULTI-STEP CLAUSE: NEGOTIATION-CONVENING-ARBITRATION

"In the event of a dispute between the parties arising out of this agreement, the parties agree to use the following procedure prior to pursuing any other legal remedy:

1. Promptly following the onset of the dispute, a meeting shall be held between the parties, attended by senior individuals with decision-making authority, to attempt in good faith to negotiate a resolution.

2. If, within thirty (30) days after this meeting the parties have failed to resolve the dispute, they agree to jointly select a neutral advisor who will guide the parties in the design of an appropriate dispute resolution procedure. The parties will equally share the costs of the neutral and of the ensuing dispute resolution procedure.

a) If, after thirty (30) days, the parties are unable to agree upon the choice of the neutral advisor, then one will be chosen by _______________ [insert name of DR organization / centre / professional association].

3. With the advice of the neutral, the parties will jointly design a dispute resolution procedure. The parties will participate in this procedure in good faith for ______ days [30, 60, 90, depending upon the complexity of the dispute].

4. If the parties are unable to resolve the dispute through the procedure designed with the help of the neutral, then the parties agree to submit the dispute to binding arbitration pursuant to the Commercial Arbitration Act.

5. In the event of arbitration, the parties will jointly select an arbitrator. If, after thirty (30) days, the parties are unable to agree upon the choice of arbitrator, then one will be chosen by _______________ [insert name of DR organization / centre / professional association]."

TWO-STEP CLAUSE: NEGOTIATION-ARBITRATION

"The parties agree to make all reasonable efforts, in good faith, to resolve any controversy or claim arising under this agreement through face-to-face negotiations between senior management over a period of thirty (30) days [or other period more appropriate to the dispute]. The parties will bear the cost of these negotiations equally. Should they fail to resolve the dispute, the parties agree to submit the dispute to arbitration pursuant to the Commercial Arbitration Act."

The same clause could be used with mediation selected as the first step in the place of negotiation. A finite time period for the mediation, tailored to the complexity of the case, should be specified (eg. 8 hours, three days, etc.) before the parties agree to resort to arbitration.

I. Miscellaneous

DISPUTE RESOLUTION PLEDGE

This "negotiate in good faith" clause, requiring the parties to first attempt a resolution through negotiation, is useful when, at the time of contract formation, a future dispute is foreseeable, yet the parties are uncertain what kind of dispute resolution mechanism will best fit that conflict. This clause, simply by bringing the parties together and encouraging them to talk, may create a conciliatory atmosphere that reduces the likelihood of litigation.

"In the event of a dispute between the parties arising out of this agreement, the parties agree to explore resolution through negotiation or other appropriate dispute resolution procedure before resorting to litigation."

AGREEMENT FOR SERVICES OF NEUTRAL ADVISOR

This sample agreement can be used, with modifications, for a neutral's services in a variety of dispute resolution procedures.

"BETWEEN Her Majesty the Queen in Right of Canada (the "Crown")

AND __________________________ (the "Contractor")

AND __________________________ (the "Neutral")

Whereas Her Majesty and the Contractor are parties to a contract dated _________, and identified as ________________ (the "Contract"); and

Whereas a dispute has arisen between the parties concerning the Contract; and

Whereas the parties wish to attempt to resolve this dispute through a mini-trial and will require the assistance of a third party neutral;

Therefore the parties agree as follows:

"1. The Neutral agrees to serve as the neutral advisor for the Mini-Trial between the Contractor and the Crown, to be held in [city], on [date], and to undertake those duties set forth in the Mini-Trial Agreement between the Contractor and the Crown, dated ___________.

2. The Neutral shall be compensated for these services at the following rate: [eg. $ per diem]. Payment shall be made to the Neutral in the following manner: [eg. a retainer shall be paid to the advisor upon the signing of this Agreement, final payment shall be made upon receipt of an invoice following termination of the Mini-Trial]. This cost shall be equally borne by the Contractor and the Crown.

3. The Neutral agrees to keep confidential all information relayed to him/her in connection with the Mini-Trial proceeding. However, information disclosed to the neutral during this mini-trial can not prevent subsequent disclosure of that information if required by law or if required for the purposes of enforcing a settlement agreement reached between the parties.

4. The parties agree that the Neutral will be disqualified as a witness, expert or consultant for any party, for a proceeding in any way related to this Mini-Trial, or during which the information gained by the Neutral during the Mini-Trial could be used to the detriment of either the Contractor or the Crown."

Appendix I: Considerations in selecting a dispute resolution clause

1. Evaluate the relationship between the parties, the industry, the types of disputes that arise, the historical solutions.

2. Based upon the evaluation made in #1, is there a reason why an alternative mechanism should not be used? Client and counsel should discuss this choice together.

3. Articulate the need. What is the clause designed to do. Defining the objective will help the drafting of the resolution mechanism.

4. Prevention must be a primary objective. If disputes have historically arisen around a particular aspect of the parties relationship, pay extra attention to this part of the contract and carefully design a resolution mechanism that may prevent an escalation of the dispute. Why not start with a clause requiring senior managers of both or all parties to negotiate at the earliest stage of disagreement?

5. Can the parties agree upon a particular dispute resolution process now (eg. multi-step, mediation), or do they prefer to keep the flexibility of choosing a process (perhaps with the help of a convenor) once the dispute arises?

6. What realistic time periods can be incorporated into the process to keep it progressing? Consider the location and availability of the parties, the nature of the industry, the importance of the contract to the parties' operations.

7. How will the parties select a neutral? Can this be specified in the agreement? Is there a neutral already chosen that can be named in the contract?

8. Where will the process occur? This may be difficult if the parties are geographically distant. It is best to decide on a mutually agreeable location now, however, than in time of conflict.

9. How will the costs of resolution be shared?

10. Is the language of the clause clear and unambiguous? Is the process credible?

11. The client and counsel should work together in designing the resolution clause.

12. What obstacles exist in the Department or the industry that will hamper the resolution process? Is senior management apprised and committed?

[<-] 1. Zuber, Hon. T.G., Report of the Ontario Courts of Inquiry, 1987, Queen's Printer, 332 pp., p. 200

[<-] 2. [1843-60] All E.R. Rep. 1, 3.

[<-] 3. [1843-60] All E.R. Rep. 1, 1.

[<-] 4. Deuterium of Canada Ltd. and Cape Breton Heavy Water Ltd. vs. Burns and Roe et. al. [1975] 2 S.C.R. 124; Marine Atlantic Inc. vs. Georgetown Shipyard Inc., et. al. (1990) 34 F.T.R. 168 (F.C.T.D.); Burnett vs. Cipriani (1933) 1 W.W.R. 1; Ortynsky vs, Saskatchewan Crop Insurance Board (1983) 1 W.W.R. 724 (Q.B.); Re Scotia Realty Ltd. and Olympia and York SP Corporation and Campeau Corporation (1992) 9 O.R. 3d 414.

[<-] 5. California has explicitly provided by statute that contracts to submit to arbitration are generally valid, enforceable and irrevocable (California Code of Civil Procedure, ss.1280 et. seq.). The code provides for enforcement of arbitration agreements and, where the agreement itself does not specify the procedures to be followed, provides default procedures from the appointment of the arbitrator to the enforcement of the award.

[<-] 6. R.S.C., 1985, c. 17, 2d Supp., schedule.

[<-] 7. Ibid., Article 16(1).

[<-] 8. In an American decision, Haertl Wolff Parker Inc. vs. Howard Wright Construction Co., 1989, WL 151765 Dist. Ore., 4 December 1989 (unreported), the U.S. District Court for the 9th Circuit dismissed a lawsuit brought by a party in breach of a contract clause committing the parties to first submit any contract disputes to a named third party for his settlement recommendation. The plaintiff argued that because this clause only provided for a non-binding recommendation, plaintiff was not obliged to follow it before commencing proceedings. The court specifically rejected this reasoning and enforced the dispute resolution clause.

[<-] 9. For example, see the Public Service Staff Relations Act, R.S.C., c. P-35, s. 101

[<-] 10. (1994) 2 S.C.R. 557

[<-] 11. Ibid., at 590.

[<-] 12. Compare the limited recourse under the Commercial Arbitration Act to provincial acts in Ontario, Manitoba and Prince Edward Island which allow the parties to create grounds of appeal within their arbitration agreement. R.S.O. 1990, c. A.24, s. 16; R.S.M. 1987, c. A120, s. 31(1); R.S.P.E.I. 1988, c. A-16, s. 21(2).

[<-] 13. For a more thorough discussion of review of an arbitral award, see, The Law and Practice of Commercial Arbitration, by R.H. MacLaren and E.E. Palmer, The Carswell Co. Ltd., Toronto, 1982, chapter 9; and The Law and Practice of Commercial Arbitration In England, 2d Edition, by M.J. Mustill and S.C. Boyd, Butterworths, London and Edinburgh, 1989, chapters 36-37.

[<-] 14. Article 24 of the Commercial Arbitration Act, Ibid., provides that a party to an arbitration must produce to other parties any document upon which the arbitrator(s) may rely in making their decision. Article 27 gives the arbitrator access to the courts for assistance in taking evidence.

[<-] 15. Under the Public Service Staff Relations Act, R.S.C., c. P-35, s. 108, mediators, arbitrators and other neutrals receive statutory protection against being compelled to testify respecting information obtained in the discharge of their duties

[<-] 16. R.S.C. 1985, c.17, 2d Supp., article 10.

[<-] 17. R.S.C. 1985, c.17, 2d Supp., Schedule 2, article 1.

[<-] 18. Commercial Arbitration Code, Ibid., Article 19.

[<-] 19. Ibid., Article 28.

[<-] 20. R.S. 1985, c. 17 (2d Supp), Schedule 2.

[<-] 21. Although each province also has an arbitration act, only British Columbia provides an accompanying set of procedural rules, as administered by the British Columbia International Commercial Arbitration Centre.

[<-] 22. Contracting Policy Notice 1993-1, File No. 3800-027, January 28, 1993.

[<-] 23. R.S., 1985, c. U-2.4 (R.S., 1985, c. 16 (2nd Supp.)).

[<-] 24. Note that this section contains three essential elements of an arbitration agreement: (1) it defines the jurisdiction of the arbitrator(s) through the description of the dispute in question (the parties may wish to itemize the specific issues to be adjudicated); it specifies whether the arbitrator's decision will be binding on the parties; and (3) it specifies the law which will govern the arbitration.

[<-] 25. Article 19 of the Code provides that,

"(1) Subject to the provisions of this Code, the parties are free to agree on the procedure to be followed by the arbitral tribunal in conducting the proceedings.

(2) Failing such agreement, the arbitral tribunal may, subject to the provisions of this Code, conduct the arbitration in such a manner as it considers appropriate..."

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