Canada’s Balancing Act: Ad Hoc v. Institutionally Administered Arbitration – What’s Next?

By Shashi K. Dholandas, International Case Director for the AAA-ICDR in New York City

Canadians rightfully pride themselves on playing an integral role in the ever advancing development of international procedural rules and arbitral institutions. Canada was the first country to adopt the UNCITRAL Model Law on International Commercial Arbitration in 1986 and its nationals continue to champion the implementation of cutting edge institutional dispute resolution tools such as emergency arbitrator, joinder, and consolidation mechanisms; mechanisms which are becoming commonplace through their adoption in one form or another by arbitral institutions around the world.

Yet, many of these arbitral mechanisms remain out of reach for parties and lawyers within Canada as the result of a preference for ad hoc arbitration. There are, of course, certain advantages to ad hoc arbitration, including the ability to develop specific procedures tailor made for disputes and parties, the ability to directly negotiate the compensation of an arbitrator, and the lack of administrative fees to be paid to an arbitral institution. Ad hoc arbitration provides a high degree of flexibility for sophisticated and knowledgeable parties, allowing them to directly manage their process. However, the predilection toward ad hoc proceedings seemingly has less to do with strategic reasoning than it does with cultural preference for arbitration practice as it has historically existed in Canada.

Institutional arbitration on the domestic level within Canada is a relatively new phenomenon. In the absence of domestic arbitral institutions akin to what has existed in the United States since the 1920s, ad hoc arbitration has thrived and for decades defined parties’ expectations of how arbitral proceedings should be structured. Effective arbitration practice in Canada, therefore, has relied on parties and lawyers working toward initiating and resolving their disputes in a constructive manner rather than relying on an institution to help guide and propel any such proceeding to its conclusion. Benefitting from a deeply rooted cultural sense of consensus and cooperation, Canadian lawyers, unlike their cousins to the south, take a less confrontational approach to dispute resolution and attempt to compromise more readily on contentious issues. In fact, Canadian lawyers, as a matter of practice, are inclined to cooperate readily with each other in order to set out a timeline and procedure for an arbitration at the time a dispute arises or shortly thereafter, even in instances where an arbitration clause may already incorporate a previously agreed to procedure or call for institutional administration. For the most part, domestic practitioners in Canada have thus far subscribed to the idiom, “If it ain’t broke, don’t fix it.”

What must be noted is that the potential advantages of ad hoc arbitration as compared to administered arbitration diminish, if not vanish, should the parties involved in a dispute be unable to come to agreement on procedural issues once a dispute has arisen, or should one party refuse to participate in or even purposely act to frustrate the process – when, in fact, the previously noted idiom is inapplicable and the arbitration process does indeed need fixing. Among the benefits of having an institution incorporated into an arbitration clause is that it allows the process to be initiated, even if at the outset of the dispute the parties are unable to reach any agreement on procedure or arbitrator appointment, without requiring the parties to then approach the courts as a fall back. Through an institution, the parties may also benefit from having an assigned administrator manage the arbitration procedure, a set structure for proceedings in the absence of a party, and having access to emergency arbitrators. Depending on the chosen institution, the parties may also have challenges to the service of an arbitrator be resolved by the institution itself instead of by the arbitrator(s) or in court.

There is an undercurrent of thought that, should parties depart from an ad hoc process and enter a purely institutional one, they may lose control over what should be the parties’ process to an unrelated, unconnected third party. Yet the fear that institutional arbitration leads to a loss of control of the process is mitigated, to varying degrees, by the choice of institution. For instance, the International Centre for Dispute Resolution (ICDR) and ICDR Canada’s approach is to provide a guiding hand should an impasse exist or intervention be requested, but to otherwise leave the parties and the tribunal to run the arbitration as their own process. Article 1.1 of the Canadian Arbitration Rules of ICDR Canada specifically addresses the parties’ ability to modify the applicable rules to fit the parties’ needs, “[…] the arbitration shall take place in accordance with these Rules as in effect at the date of commencement of the arbitration, subject to modifications that the parties may adopt in writing.” ADR Chambers Arbitration Rule 2.1 similarly states “[t]hese Rules apply to the arbitration administered by ADR Chambers, subject to such modification as the Parties may agree upon.”

Ad hoc arbitration as well as institutional arbitration both present advantages to parties and practitioners depending on the nature of the dispute, sophistication of the parties, and the amount in contention. Within Canada, institutions are investing in the expectation that there will be a shift toward institutional arbitration as parties and practitioners become increasingly familiar with the benefits of an administered process. Yet given the continuing cultural proclivities of Canadian arbitration practitioners toward ad hoc proceedings, an interesting further possibility exists in relation to institutional “à la carte” services.

Through a hybridized process, parties would be able to utilize institutions to confidentially administer specific problematic aspects of ad hoc arbitrations such as arbitrator selection and appointment, the handling of arbitrator disclosures and challenges, or the managing of tribunal finances. This would be accomplished either by parties integrating clear language into an arbitration agreement calling for an institution to provide a specific limited service, or by the parties providing a joint submission agreement to an institution after a dispute has arisen – provided, of course, that the parties select an institution which offers such limited services. This hybrid practice would seek to address the weaknesses that exist in a purely ad hoc proceeding, while incorporating the security and reliability of an institution on an “as needed” basis. As a country known for its emphasis on integrating cultures and ideas into a uniquely Canadian concept, hybridized arbitration may become the new norm, with Canada continuing to champion developments in arbitration practice.