Toronto Commercial Arbitration Society Considers the Future of Arbitration in Ontario

Toronto Commercial Arbitration Society Considers the Future of Arbitration in Ontario

Joshua Karton*

On May 27, the Toronto Commercial Arbitration Society (TCAS) held its Annual General Meeting and Conference. The theme of this year’s conference was “The Future of Arbitration in Ontario”. It was ably hosted online by Arbitration Place Virtual and co-presented by CJCA. A full recording of the AGM and conference can be found here. (The conference portion of the event begins at 34:20.) This post will not attempt to provide an exhaustive report of the discussions, but will instead summarize the presentations and highlight a few key points, to serve those unable to spare the three-plus hours to watch the video—although that investment of time would be well rewarded!

The centrepiece of the conference was a presentation of the final report of TCAS’s Arbitration Act Reform Committee (AARC). The AARC, comprised of many of the Ontario commercial arbitration scene’s leading lights, spent the past four years debating reforms to Ontario’s arbitration legislation, and has now produced a detailed report and draft statute. The full report, which I would encourage anyone involved in commercial arbitration in Ontario (or in arbitration law reform efforts elsewhere) to read, is available on TCAS’s website. Several members of the AARC were on hand to discuss various aspects of the proposed legislation.

TCAS Co-Chair and Treasurer Ted Frankel first called upon AARC co-chair Bill Horton to introduce the committee’s recommendations. Horton highlighted the main features of the committee’s proposals, most notably that all commercial arbitrations in Ontario, domestic and international, be governed by a single act, with what is now the Arbitration Act applying only to non-commercial arbitrations. (This choice is explained in detail in Appendix B to the AARC’s Report.) Horton cited both “push” and “pull” reasons for a single act—that there are good reasons to consolidate all commercial arbitrations under one statute, and that there are and good reasons to distinguish all commercial arbitrations from all non-commercial arbitrations (in which, for example, more extensive judicial intervention may be appropriate). Moreover, the case law record shows great confusion about which existing statute, the Arbitration Act or the International Commercial Arbitration Act, applies in a given case. Indeed, the choice to recommend a single act for commercial arbitrations was motivated in part by the increasingly cross-border character of commercial dispute resolution in Ontario, and the corresponding erosion of the distinction between domestic and international arbitrations.

A single act would also help to ensure that all arbitrations in Ontario are conducted according to modern international standards. In practice, that means closer adherence to the UNCITRAL Model Law, especially on matters relating to judicial intervention. At the same time, the AARC recognized that the Model Law was never designed to serve as the complete lex arbitri for any jurisdiction, so simple enactment of the Model Law as a combined domestic/international arbitration statute for Ontario would be inappropriate.

Horton then introduced four fellow members of the AARC, who spoke to specific aspects of the proposed act. First up was AARC co-chair Joel Richler, who explained the committee’s proposals relating to appeals, an area where significant uncertainty persists under s 45(1) of the Arbitration Act. That section sets out the circumstances in which a court may grant leave to appeal from an arbitral award; Richler characterized it as “so ambiguous as to be inherently useless”.

In formulating replacement language, the committee kept in mind two countervailing principles: party autonomy, which militates in favour of permitting contracting parties to choose the appeal structure most suitable for themselves, and the essential character of arbitration as providing a final and decisive outcome from private decision-makers. After considering a range of provincial and international comparators, the AARC has proposed an opt-in regime that permits the parties to agree on the possibility of appeals, but only on questions of Canadian law and directly to the Ontario Court of Appeal. In addition, the AARC recommends deleting a rarely-invoked provision (s 45(4)) that empowers courts to require arbitral tribunals to explain themselves. This approach prioritizes party autonomy, which is appropriate for a statute that applies only to commercial arbitrations, and seeks to limit post-arbitration litigation and provide greater predictability when such litigation arises.

Next was AARC member Cynthia Kuehl, who spoke about the stays of court proceedings. The committee’s two priorities were to reduce the subjectivity of the current legislation, which makes stays of proceedings unpredictable, and to adjust the stay provisions to be appropriate for both domestic and international arbitrations. The committee, unsurprisingly, approved of the overriding principle in the current legislation that courts should normally stay proceedings when a dispute is subject to an arbitration agreement; the question is the scope of the exceptions to that general principle. The committee recommends removal of existing exceptions for “undue delay”—which puts courts in the position of deciding what constitutes undue delay in an arbitral proceeding—and for cases the court deems appropriate for resolution by summary judgment—which infringes on party autonomy by putting the court, rather than the parties, in the position of choosing the most means of dispute resolution.

The proposed new wording is taken from Art. II of the New York Convention, that court proceedings should be stayed and the parties referred to arbitration unless the arbitration agreement is null and void, inoperative, or incapable of being performed. This standard keeps judges focused on issues relating to natural justice, which are appropriate for the courts. The committee has also proposed that parties may request a stay no later than when submitting their first statement on the substance of the dispute—an objective standard that avoids debates on what constitutes “undue” delay.

AARC co-chair Brian Casey then presented on a pair of issues not sufficiently addressed in the existing legislation: arbitrator immunity and fees. The Arbitration Act says nothing directly about immunity, although it does provide in s 15(4) that, if a court removes an arbitrator for “a corrupt or fraudulent act or undue delay”, it may order that the arbitrator receive no payment for their services, and even compensate the parties for some or all of their costs incurred before the removal. The Act says nothing about what happens if an award is set aside due to arbitrator misconduct or any other related issue. Canadian common law is settled that arbitrators enjoy immunity in tort and breach of contract, unless the arbitrator acted in bad faith or committed fraud. The main question is whether an exception to immunity should be included for deliberate or bad faith conduct. The AARC’s proposal provides expressly for immunity, with no exception for bad faith. This choice was motivated by Supreme Court precedent which defines bad faith broadly, to include gross negligence and even recklessness, which the AARC was concerned would have a chilling effect on arbitrators. The proposed statute also includes a provision immunizing arbitrators from being compelled to testify on matters relating to an arbitration, which is a change from the common law.

Casey also described the AARC’s proposals for statutory language relating to arbitrator fees. The Arbitration Act permits an arbitrator’s fees and expenses to be assessed by an assessment officer in the same manner as a solicitor’s bill (s 56(1)), an odd provision that, to the committee’s knowledge, has never been invoked. As a general matter, the committee felt that most matters relating to arbitrator fees in commercial arbitrations can be left to the private regulation by the market, especially since, under a single act, international arbitrators should not have to risk having their fees decided according to the opinions of a provincial assessment officer.

The last member of the AARC to present was Doug Harrison, who explained the committee’s recommendations for five situations where time is a factor: limitation periods, commencement of an arbitration, challenging an arbitrator, extending the time for a tribunal to render its award, and applying for appeals or set-asides. The committee’s overarching goal was to ensure uniform treatment of these issues for domestic and international arbitrations, since currently the Arbitration Act and International Commercial Arbitration Act differ on each of them. For the most part, the committee felt that the time limits in the international legislation should apply to domestic arbitrations as well. There was one area, however, where the committee declined to make a recommendation. S 52 of the Arbitration Act provides that Ontario’s limitation periods apply to matters relating to domestic arbitrations, but there is no comparable legislative provision for international arbitrations. The committee decided to simply flag the issue, but leave it up to the legislature whether it should be resolved in a new single commercial arbitration act, by amendment to the Limitations Act, or otherwise.

Horton wrapped up the discussion of the AARC’s report by discussing next steps. The report has been widely distributed in the arbitration community with an eye to soliciting comments, although no comments have yet been received. A responsible official in the Ontario Ministry of the Attorney General has also received a copy of the report. However, the AARC does not expect any action from the provincial government as long as the Covid-19 pandemic continues. TCAS will formulate a more aggressive political strategy following the pandemic, which will likely be necessary to push forward progress on an issue that typically fails to attract much political attention.

After a break, the next panel considered the issue of arbitration in Ontario from a broader perspective. The first pair of speakers, Janet Walker and Hugh Meighen, commented on the internationalization of domestic arbitration practice in Ontario and across Canada. Walker emphasized that just as commercial practices and communities have long transcend borders, the same is now true of commercial dispute resolution as well. Canadian commercial arbitration lawyers work in a globalized profession, no matter how apparently domestic their practice may be. The same can even be said of courts, especially in Model Law jurisdictions, given that the Model Law itself mandates in Art. 2A that it be interpreted consistently with its international origin and the need to promote uniformity in its application. The challenge for Ontario, then, is to develop the expertise of the arbitration community in line with international standards.

Meighen then took the torch from Walker, to tease out some of the practical implications of these developments. He emphasized (as did the AARC) that the international model of arbitral practice not only has a foothold in Canada for international arbitrations, but indeed is appropriate for many domestic commercial arbitrations as well. However, there are risks when a tribunal seeks to proceed according to international standards, as these standards may contradict the expectations of parties and counsel whose background is in domestic dispute resolution. Mismatches in expectations within tribunals and between arbitrators and counsel are potential sources of resentments, and in more serious cases will lead to challenges to arbitrators and appeals or set-aside applications. Arbitrators in particular should be aware of the potential for misunderstandings, and should take care to be transparent about their own preferences and to solicit clear proposals or agreements from the parties on matters where Canadian and international customs may differ, such as timelines, scope of document discovery, and substantiation of costs. Meighen concluded by calling for greater education and training within Canada as to international norms, as well as greater publication of commentaries tailored for the Canadian audience on international arbitration practice.

The discussion continued with three “perspectives from abroad” on Canadian and Ontario arbitration in those regions, and what those impressions mean for Ontario’s arbitration community. John Judge presented the view from London, Barry Leon from the Caribbean, and Myriam Seers from Latin America.

What was most striking was how consistent were the impressions communicated by the three presenters from their respective regions. In each region, local practitioners do not think of Ontario as differentiated from other provinces within Canada, nor indeed do they think of any Canadian city as an arbitration centre at all. While Canadian parties and Canadian lawyers play a major role in international arbitration, and Canada is seen as “punching above its weight” in the field thanks largely to the prominence of some individual arbitrators, Canada and Ontario are not really part of the discussion as a seat for international arbitrations, even those involving Canadian parties and arbitrators. As Judge noted, the most recent White & Case / Queen Mary survey does not even list Toronto among the top regional centres for arbitration, let alone the global centres.

Similarly, while the international practice of Canadian firms is growing, they still tend to lose out to the large multinational firms or well-known international arbitration boutiques when seeking mandates for the most complex and highest-stakes commercial and investor-state arbitrations. Excellent young Canadian lawyers continue to move abroad to major arbitration centres to build their practices. According to Judge, London arbitration lawyers tend to see Canada as a source of clients and perhaps of arbitrators, but not as an arbitration venue. In the Caribbean and Latin America, the context is different from London in that those regions are not themselves seen as major international arbitration centres, but the outlook is largely the same: while Canadian companies are major players and Canadian arbitrators are well-known, Canadian firms are not prominent as counsel and Canadian cities are not generally considered as venues. This phenomenon is particularly striking in the Caribbean, where Canada—especially the Greater Toronto Area—has deep and longstanding commercial, legal, educational, and familial connections.

The problem with Toronto and Ontario not being seen as an arbitral seat is that Canadian cities are hindered in their efforts to develop expert arbitration bars and judiciary, which then further inhibits their growth as seats of arbitration. That said, there are indications that Toronto, and Canada generally, can raise its profile in international arbitration. A prime example is Arbitration Place, which is now known around the world as a reliable provider of arbitration services, especially for online proceedings. Moreover, Canadian jurisdictions, especially Ontario, “tick all the boxes” in terms of factors that parties prioritize in choosing a seat, such as neutrality, a supportive judiciary, a strong track record in enforcing arbitration agreements and awards, and adoption of the Model Law. When pushed to state an opinion, practitioners in London, the Caribbean, and Latin America gave Canada high marks on these matters, especially in contrast to the US, but still admitted that they do not think of Canada when asked to advise on potential seats of arbitration.

The common thread from these presentations is the gap between Canada’s and Ontario’s arbitration virtues “on paper”, which are significant, and the general lack of consciousness of Canadian arbitration abroad. Ontario therefore may suffer more from a marketing problem and from contract-drafting inertia than from actual deficiencies. Since Toronto may never be able to beat out the Londons and Singapores of the world in a head-to-head contest, the three presenters argued that we should focus on organic growth from existing clientele and on niche strategies for expansion. The Caribbean and Latin America, in particular, present good opportunities for promotional efforts. While the Caribbean is not a large arbitration market, Canada has competitive advantages there, given its ties to the region. Latin America, by contrast, is a huge and fast-growing market where Canadian parties play a large role (especially but not only in mining), and Toronto has a niche opportunity to present itself as the “natural seat” for disputes between US and Latin American parties or between European and Latin American parties.

All three presenters encouraged the Canadian arbitration community to be more “present” abroad, through conferences, publications in regional journals, participation in training and capacity-building programs, and the like. However, Seers went further, observing that decisions on arbitral seats are actually made by corporate counsel, often years before a dispute arises; Canadian arbitration lawyers, therefore, should be pushing their transactional colleagues to include arbitration clauses selecting Toronto or other Canadian cities as the seat of arbitration.

I was asked, as Managing Editor of CJCA, to provide some concluding thoughts on “where we go from here”. I mentioned the steps that other jurisdictions, especially in Asia, have taken to successfully develop arbitration on their shores. Successful development rests on a three-legged stool of legislative reform, institutional development, and capacity-building in the bar and judiciary. Canada is doing well on legislative reform, although that would be furthered by speedy adoption of the TCAS AARC’s recommendations. With respect to institutions, however, Canada’s tradition of ad hoc commercial arbitration works well within Canada but may harm our competitiveness internationally, where institutional arbitration is more common. Moreover, the lack of a marquee national arbitral institution means that Canada lacks both a community focal point and a “brand name” that arbitration professionals abroad will recognize. Third, to develop Canada as an arbitration venue, expertise must be developed up and down the profession, so that the bar and bench have sufficient knowledge and experience in international arbitration procedures. The jurisdictions that have been most successful in developing themselves as arbitration venues over the past two decades, especially Singapore and Dubai, also benefit from seamless cooperation between the legislature, the institutions, the judiciary, and the bar. As a professional society, therefore TCAS work to build a culture of cooperation and integration between these different parts of the Canadian legal community.

In conclusion, I echoed the call to action of other presenters that Canada should play to its strengths, in particular by position itself as a neutral venue for the resolution of disputes between parties from the Western Hemisphere, especially the US, and parties from Europe or Asia. One of Canada’s unusual comparative advantages is its multiculturalism, which is exemplified by the Greater Toronto Area’s unparalleled degree of cultural and linguistic diversity. The arbitration community could do more to diversify its own ranks by actively recruiting first- and second-generation Canadians, and showing them that arbitration, especially international arbitration, is an excellent practice area in which to realize their multinational or multicultural identity while still developing a Canadian legal career.