Dispute Resolution Guide

June 1995
Update November 2003

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Contracting Directive (Archived Document)

Justice Guidelines Concerning the Use of Arbitration
In Real Property Transactions

July 95

TO: All Heads of D.L.S.U's
Directors of D.O.J. Regional Offices
Heads of Property and Commercial
Law Sections in Regional Offices

FROM: Richard Thompson, Q.C.
SrADM, Legal Services Sector

Use of Arbitration in Real Property Transactions

When the Treasury Board issued guidelines in January of 1993 concerning the use of arbitration in contract disputes ("contracting guidelines"), it announced its intention to issue separate guidelines for the use of arbitration in real property transactions at a later date.

Treasury Board issued guidelines for the use of arbitration in real property transactions ("real property guidelines") on October 31, 1994. They were developed in consultation with the Property Law Section of the Department of Justice and can be found in Appendix C to chapter 1-12 of the Real Property Volume of the Treasury Board Manual. A copy is attached to this memorandum as TAB I .

The real property guidelines were developed specifically for real property transactions, because of the special treatment of real property in statutes and in the common and civil law. Due to the special legal regime which applies to real property, arbitration has not been used to the same extent as in other commercial situations. Specific statutes govern the interpretation, content and enforcement of real property matters, and there exists a body of case law upon which real property practitioners rely to govern the conduct of their practice. For example, summary procedures exist in many provinces for determination of questions regarding the interpretation of agreements of purchase and sale.

Because of this distinction, the contracting guidelines and the real property guidelines differ in terms of when an arbitration agreement can be entered into and what types of disputes can be covered without the formal concurrence of senior levels of the Department of Justice. for example, the contracting guidelines allow all matters of fact or law to proceed to arbitration without the concurrence of the Senior ADM, Legal Services, except a question that "involves the interpretation or application of the public law of Canada (i.e., constitutional, administrative, criminal and tax law)". However, the real property guidelines state that the use of arbitration to resolve questions other than one of valuation or the obligations of maintenance, repair and condition of premises as set out in a lease or licence, requires the concurrence of the Senior ADM, Legal Services or the Associate DM, Civil Law and Corporate Management. This distinction is due to the particular nature of property law practice, and does not in any way lessen the government's support for the increased use of arbitration and any other dispute resolution mechanisms.

In situations where you must obtain the concurrence of the Senior ADM, Legal Services or the Associate Deputy Minister, Civil Law and Corporate Management, you should send your request to the General Counsel, Dispute Resolution Project.

As you are aware, commercial arbitration to which the federal government is a party is governed by the Commercial Arbitration Act and the Commercial Arbitration Code, copies of which are attached to this memorandum as TAB II .

The important question of whether the "arbitration agreement" referred to in the property guidelines should be included in the principal document or negotiated at the time a particular dispute arises is a matter of considerable debate. You should make this determination carefully on a case-by-case basis and consult with the Dispute Resolution Project in doing so.

As soon as you are aware that an arbitration may take place, you may wish to notify the appropriate litigation group and inform them of the details, including any attempts to settle the dispute by negotiation or any other method.

Attached as TAB III is a brief sample clause for the resolution of a rent review dispute. Many standard form leases may not support a lengthy arbitration clause. If you are negotiating or drafting leases or agreements that are complex or of significant value, you should consider a more comprehensive arbitration clause. The particular nature of the situation will determine how best to proceed. The Dispute Resolution Project can offer assistance in this regard. Furthermore, the Property Law Section and the Commercial and Property Law (Quebec) Group have collected a number of arbitration clauses and agreements which may be of use and would be pleased to share these and discuss them with you.

While the real property guidelines provide specific guidance on the use of arbitration, you will note that they also favour the use of other, more informal dispute resolution mechanisms in the following words:

"Through discussion, good faith negotiations, mediation or conciliation, departments will make all reasonable efforts to resolve any real property dispute in the best interest of Her Majesty."

The real property guidelines, therefore, support the goal of the Department of Justice that, through careful consideration, the dispute resolution mechanism chosen will be the one most appropriate to the particular dispute in question.

We trust that these guidelines and the annexed material will assist you in advising your clients as to the appropriate means of resolving disputes concerning real property transactions in accordance with government policy.

_______________ _______________
Richard Thompson Mario Dion

Sample Rent Review Arbitration Clause

This is a sample arbitration clause for a rent review where the parties each obtain appraisals of the fair market rent of lands and are unable to agree. The rent review clause requires submission to arbitration if the parties are unable to agree within X days of the date on which the appraisals were delivered. Ideally, the rent review clause provides that rent must continue to be paid until the new rent is determined and is then subject to adjustment, and that in no event shall the new rent be less than the rent for the previous term.

Article xxx - Arbitration

.01 If the Landlord and the Tenant cannot agree on the amount of Rent to be paid during the relevant review term within the time set forth in clause xx hereof, the amount of Rent to be paid during the relevant term shall be referred to and determined by arbitration by a single arbitrator *, as hereinafter provided.

.02 Either Party shall have the right, by written notice, to nominate the arbitrator * who shall be a person then active in the province of .................. as an accredited real estate appraiser having not less than ..... years experience as an accredited real estate appraiser.

.03 If the Parties nominate two different persons as the arbitrator, or the person not nominating a person as the arbitrator disagrees with the choice of the other Party, and the Landlord and the Tenant fail to otherwise agree upon the appointment of a person as the arbitrator within 5 days of the first notice to be delivered, then the appointment of the arbitrator * shall be determined in accordance with the provisions of the Commercial Arbitration Act (1986, S.C. c. 21).

.04 The arbitrator so appointed shall thereupon proceed to hear the submissions of the Parties and shall render his decision in writing within 30 days after the appointment.

.05 Subject only to the provisions of the Commercial Arbitration Act, the Parties agree that the determination and award of the arbitration shall be final and binding on both Parties.

.06 The arbitration shall be governed by the Commercial Arbitration Code referred to in the Commercial Arbitration Act.

.07 The arbitration shall take place in the City of ........., in the Province of .......... .

.08 During the progress of the arbitration, the Parties shall continue to perform their obligations under the Lease.

.09 The language of the arbitration proceedings and of the arbitral decision and award is ........ .

.10 The arbitrator shall decide the dispute in accordance with the laws in force in the Province of ............. .

.11 The arbitrator shall not be authorized to decide ex aequo et bono or as amiable compositeur.

.12 Each Party shall bear its own costs of the arbitration including, without limitation, all legal, appraisal, and expert fees, and shall pay one-half of all fees and expenses of the arbitrator or of any clerk, secretary or reporter assisting in the arbitration, and the expense of any services and facilities or both required by the arbitrator.

[<-] * other options include a panel of 3 arbitrators, wherein each party nominates one, and the two so nominated choose the third, who may act as a tie breaker, or wherein a majority decision prevails. For the appointment of a single arbitrator, a person may be agreed upon and named in the clause, or a person holding an office may be selected to appoint an arbitrator.

[<-] * other options include a panel of 3 arbitrators, wherein each party nominates one, and the two so nominated choose the third, who may act as a tie breaker, or wherein a majority decision prevails. For the appointment of a single arbitrator, a person may be agreed upon and named in the clause, or a person holding an office may be selected to appoint an arbitrator.

[<-] * other options include a panel of 3 arbitrators, wherein each party nominates one, and the two so nominated choose the third, who may act as a tie breaker, or wherein a majority decision prevails. For the appointment of a single arbitrator, a person may be agreed upon and named in the clause, or a person holding an office may be selected to appoint an arbitrator.

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