Introduction: A Framework for Uncertainty
The recent breakdown of Canada-US trade talks and the tariff measures that followed have prompted Canadian businesses to reassess how they manage cross-border trade. While higher costs may be the most immediate concern, the broader challenge is the unpredictability that cannot be treated as a temporary anomaly.
Political decisions, border restrictions and other government action can quickly change the economics, practicality and commercial exposure of a deal after it has been signed. At the same time, Canadian businesses, with the support of the federal government, are seeking to diversify into new markets and trade relationships. That diversification may be necessary, but it brings its own operational, legal and commercial risks.
International arbitration can help manage these risks. For Canadian businesses, that framework matters in two related but distinct contexts: managing ongoing trade with the United States despite tariff, enforcement and cross-border litigation risks; and pursuing new markets where unfamiliar legal systems, commercial practices and local courts may create additional exposure.
For Canadian businesses, arbitration can serve as both a defensive and enabling tool: it can reduce the practical risks of continuing to trade with the US, support confidence when entering new markets, and provide a credible neutral forum, including London, in cases where neither party wishes to litigate in the other’s courts.
The US Relationship: Managing Risk Without Abandoning the Market
Recent US trade measures, the breakdown of trade negotiations and the responses they have triggered have altered the economics of countless commercial relationships. Canadian businesses that trade with the United States should plan on the basis that tariff-related disruption may continue for a long time.
For many Canadian businesses, choosing not to do business with the United States will not be realistic. The US market is too large, too integrated, and too important to be ignored. But continuing to trade with the United States now requires a more deliberate approach to risk allocation, dispute resolution, and neutrality.
In the current environment, it is difficult to know which industry may be affected next. Companies may face unexpected cost increases, supply-chain disruptions, and contractual disputes arising from government action rather than commercial misconduct. Despite strong relationships among Canadian and American businesses, and among businesspeople, executives, and employees on both sides of the border, the current situation is causing disruption and triggering difficult conversations about who bears tariff costs and whether business relationships can continue on existing terms.
There is also a practical litigation risk. Recent history has shown that Canadian parties may have reason to be concerned about litigating in the US if executives, witnesses, experts, or counsel face uncertainty or difficulty crossing the border. Some of those individuals may be citizens of third countries subject to entry restrictions or enhanced scrutiny. A deteriorating bilateral relationship could also increase the practical risks associated with travel to the US. Even if these concerns are limited in any given case, dispute-resolution planning should account for the legal and practical environment as it may evolve, not simply as it exists when the contract is signed.
In this environment, international arbitration can help Canadian (and US) businesses address the practical disputes that may follow, including who bears additional tariff costs, whether prices can be adjusted, and whether performance must continue.
Rather than waiting for further disruptions to emerge, Canadian businesses should establish a framework that allows commercial issues to be addressed quickly, neutrally, and confidentially while preserving the underlying relationship. Existing agreements should be revisited to determine whether dispute-resolution clauses remain fit for purpose. New purchase orders and supply agreements should be used as opportunities to address how disputes will be resolved if tariff-related or government-driven disruption arises. Where the risk of litigation is material, even despite the best efforts and good faith of both sides, an arbitration process can provide a more predictable and commercially constructive path forward. In this context, arbitration becomes both a dispute-resolution process and a relationship-preservation tool.
New and Uncertain Markets: Creating Safety and Comfort
The new reality will encourage many Canadian businesses to look urgently elsewhere for new trade and commercial relationships. Diversification may be necessary and attractive, but new markets often bring unfamiliar legal systems, different commercial norms, regulatory uncertainty, language issues, and questions about the reliability or accessibility of domestic courts.
International arbitration can provide greater comfort to both sides of those transactions. A Canadian exporter, investor, supplier, or purchaser entering a new market may not wish to rely exclusively, or at all, on the courts of that market. At the same time, the counterparty may not wish to litigate in Canada. Arbitration allows the parties to choose neither party’s court and to agree in advance on a neutral process, a predictable legal framework, the language in which the arbitration will be conducted, confidentiality protections, and procedures designed to resolve disputes within a commercially useful timeframe.
Arbitration Clauses: A Practical Factor for Existing and New Agreements
International arbitration is sometimes associated with large, cross-border disputes that are expensive. That perception is inaccurate. Arbitration has become increasingly popular as technology has allowed more of the litigation process to be handled virtually, international commerce has expanded, including among small and medium-sized enterprises (SMEs), and courts have become increasingly congested.
One of arbitration’s greatest strengths is its capacity to reduce the adversarial intensity often associated with court litigation. That can be particularly useful where Canadian businesses are seeking to resolve disputes arising from geopolitical developments rather than ordinary party-to-party commercial misconduct. The current trade dispute has created situations in which parties genuinely wish to maintain cross-border business relationships but must confront new and unanticipated economic realities. Arbitration can be a better tool for preserving those relationships than traditional litigation because the process can be more flexible, less public, faster, and more proportionate in cost.
When developing an arbitration framework, businesses should consider a number of important issues, including:
- The seat of arbitration, which determines the legal framework supporting the arbitration and the courts that may assist or supervise the process;
- The governing law, ideally a predictable and widely accepted body of commercial law;
- The language in which the arbitration will be conducted;
- Whether hearings will be conducted virtually, in person, or through a hybrid model;
- The location of any in-person hearing;
- Confidentiality protections;
- The arbitral body that will administer the dispute;
- The number of arbitrators, including whether a sole arbitrator is sufficient or whether a three-member tribunal is justified by the value or complexity of the dispute, and how the arbitrator(s) will be selected;
- Whether the process will be expedited, including streamlined document production, limited hearing time, and accelerated decision-making; and
- Timelines and procedural rules designed to ensure that disputes can be resolved within a commercially useful timeframe.
Parties should make these choices deliberately. Normally, they should be agreeable to both sides, particularly where the guiding principles are that the process be equitable, reliable, and efficient.
London as Neutral Ground
When commercial parties come from different jurisdictions, each side will often prefer disputes to be resolved in its own courts. That preference is understandable, but it can make negotiations more difficult or contentious. Pressing for home-court advantage, even if accepted, may also require a party to spend negotiating capital that could be used more effectively elsewhere in the transaction.
A neutral forum can solve that problem. If the proposed forum is well known, respected, and proportionate in cost, it can give both sides enough comfort to move forward without requiring either party to concede a home-court advantage to the other.
Since the pandemic, which turned videoconferencing from a novelty into a broadly accepted method of communication, the ability to use a neutral jurisdiction has expanded considerably. In the past, choosing a foreign jurisdiction or seat to adjudicate a dispute could be cost prohibitive in many cases. That is no longer necessarily so. Virtual proceedings allow parties to choose a neutral foreign seat without requiring everyone to travel there. The cost of such proceedings need not be materially greater than adjudicating a dispute in a home jurisdiction, provided the parties structure the procedure carefully and select competent, cost-effective counsel.
Parties may still prefer a hybrid process, with a live hearing and other procedural steps conducted virtually. For example, some disputes may benefit from in-person witness testimony where credibility is central. In practice, however, many commercial disputes are increasingly suited to virtual hearings because little turns on credibility issues, or because the incremental cost of a live hearing is not justified. Parties are also free to choose a foreign seat of arbitration while holding any in-person hearing elsewhere. Unlike court proceedings, which must follow more rigid rules of practice, arbitration offers considerably more procedural flexibility.
The inevitable question for Canadian businesses is: if not Canada for the arbitration, then where? In many cases, London is the obvious answer. It offers a neutral forum that is familiar in language, legal tradition and commercial culture, while avoiding the perception that either side has secured a home-court advantage. This is not to suggest that Canada should be avoided where the parties can readily agree on a Canadian seat.
London is also one of the world’s leading centres for international arbitration and offers neutrality, commercial sophistication, and international credibility. In a dispute involving Canada and the US, it is a natural third-party choice. For transactions involving other jurisdictions, London is widely recognized and respected, including where different languages and legal systems are involved.
Choosing London as a seat of arbitration connects the parties to a predictable, commercially developed framework supported by sophisticated and relatively efficient courts. Proposing London as a neutral forum is therefore unlikely to surprise a serious commercial counterparty; more often, it signals fairness, practicality, and seriousness of purpose. Choosing London as the seat of arbitration should not be confused with requiring all parties, witnesses, and counsel to travel to London to participate in the case. The legal seat determines the supervisory court and legal framework for the arbitration; it does not require every procedural step or hearing to take place there. The arbitration can be conducted in whole or in part virtually, or any in-person hearing can take place somewhere other than London.
Parties will typically ask whether choosing London will materially increase cost. The answer is that it need not be any more expensive than a dispute heard in Canada or the US. While London has no shortage of high-priced lawyers, it also has highly qualified, cost-effective international counsel with experience in London-seated arbitrations. Costs can be further managed through carefully drafted clauses that provide for streamlined procedures, virtual hearings, expedited timetables and a process proportionate to the commercial relationship.
Conclusion
Earlier this year at Davos, Switzerland, Canadian Prime Minister Mark Carney remarked: “We take the world as it is, not as we wish it to be." This was part of a now famous speech where he described a new economic world order in which the US had fundamentally changed its approach to trade with its allies. Since then, the Canadian government has implemented policies to support Canadian businesses to diversify their trade relationships, while acknowledging that a significant amount of trade will continue with the US, albeit with risk. These circumstances demand adept business strategy. Careful attention to dispute resolution mechanisms should accompany such considerations.
International arbitration will not remove the uncertainty Canadian businesses now face. Properly structured, however, it can give parties a practical and neutral framework for managing that uncertainty while allowing them to continue trading with good business partners when it matters most. For Canadian businesses operating in today’s trade environment, arbitration should be treated not as an afterthought, but as a core part of commercial planning.
About the Authors & Fasken’s International Arbitration Team in London
Peter Mantas is a partner based in Fasken’s London and Ottawa offices and leads the Firm’s London international arbitration practice. Camron Monfaredi is a summer law student in Fasken’s Toronto and London offices. He will be studying at Durham University in the coming year.
Fasken’s London UK arbitration team is frequently selected to act on some of the leading arbitral disputes in the world. With support from lawyers in our Canadian offices, our multilingual team deploys in multiple jurisdictions around the world to advance our clients’ interests in arbitral matters. A pragmatic, business-oriented group, our team comprises lawyers with significant experience actually litigating cases, in addition to an outstanding knowledge of international arbitration law. For more information, please contact the London team leader, Peter Mantas.
