Chapter 17 - Dispute Resolution
Disputes can arise at any time. Frequently, they occur between co-contracting parties, employers and their employees, and businesses and their clients or among shareholders under a Unanimous Shareholders’ Agreement.
Disputes may also arise between a business and various levels of government, particularly in heavily regulated industries. Most government decisions in Canada, though, are ultimately reviewable and subject to a court’s scrutiny. Governments may similarly be the subject of damages claims in tort and contract.
Often, mechanisms and processes to resolve disputes are not thought of until conflicts arise. When it comes to doing business in Canada, it is always best to establish a rational approach to dispute resolution when negotiating any formal business arrangement or agreement.
Should issues arise, there are two basic options available for dispute resolution:
- Litigating through the courts
- Alternative dispute resolution: mediation and arbitration
Litigating Through the Courts
Choice of Governing Law and Forum
In Canada, parties may choose which laws govern their agreement through the inclusion of a “choice of law” clause. However, this clause is subject to certain limitations, such as legal provisions of public order, which may not be contractually waived. Parties can also include a “choice of forum” clause in their contract, requiring any disputes that arise to be dealt with in a specific jurisdiction or forum.
Canadian courts will presumptively uphold such clauses unless the validity of the contract itself is called into question, there is a statutory prohibition, or there are very strong public policy reasons for overriding the provision.
Where parties have not included a forum clause, the courts may decline to take jurisdiction over matters if there is a forum better suited to hear the case.
Canadian courts are increasingly open to conducting various parts of the litigation process, including examinations, hearings, and even trials, virtually through video-conferencing software. Thus, even if the litigation forum is within Canada, witnesses and other participants may not need to attend in-person. While this adoption was accelerated by the difficulties surrounding the COVID-19 pandemic, these changes are widely expected to continue.
Treatment of Commercial Matters
Several Canadian jurisdictions have taken steps recently to reform and speed up the litigation process, particularly with respect to commercial matters. In certain cities of Ontario, for example, parties in a dispute are eligible to follow a “case management” process. This enforces a strict timetable that quickly moves cases to trial.
In Toronto, parties in a commercial dispute can opt to proceed before a special branch of the Superior Court known as the “Commercial List.” If available, it is generally the preferred route as it allows cases to be heard by a judge specializing in commercial litigation, often resulting in a speedier trial and decision.
In British Columbia, parties are similarly entitled to a “case management” process to obtain orders enforcing strict timetables in the litigation. At the request of one of the parties, the court may in certain circumstances make an early assignment of the trial judge to oversee pretrial matters.
In the province of Québec, pursuant to legislation that came into effect on January 1, 2016, parties to an eventual litigation have the obligation to consider alternative dispute resolution methods before introducing a civil claim. The legislation also encourages litigators to present oral contestations (rather than proceeding in writing), which significantly reduces fees and costs.
Most provinces have provisions for a simplified civil claim procedure, provided the value remains within a statutorily defined amount and the claim relates to disputes arising from money and/or property. In Ontario, for example, the simplified procedure rules apply where a claim is for more than $25,000 but no more than $100,000. Claims for $25,000 or less are handled by the Small Claims Court. The same is true in Québec, where claims relating to amounts between $15,000 and $84,999.99 are handled by the Civil Division of the Court of Québec. Claims below $15,000 fall under the jurisdiction of the province’s Small Claims Court. Class actions are not subject to the simplified procedure rules. British Columbia has a number of rules to expedite certain cases, including Fast Track Litigation for many matters where the amount at issue is less than $100,000. British Columbia also has Small Claims Court where the amount at issue is less than $35,000 and a Civil Resolution Tribunal to resolve certain types of
claims, including societies and cooperative associations disputes, strata property disputes, and claims below $5,000.
Most provinces also have provisions for a summary judgment and/or summary trial procedure, allowing for a final determination of an issue or proceeding prior to trial. The Supreme Court of Canada has emphasized that summary judgment rules must be interpreted broadly, favouring proportionality and fair access to the affordable, timely, and just adjudication of claims.
The scope of documentary discovery in most Canadian provinces (with some exceptions) is similar to that of the United States. The general rule is that parties to civil litigation must, after the pleadings have been delivered, disclose the existence of all documents relevant to the litigation, whether or not those documents are favourable to their position. In Québec, however, parties need only disclose documents that they intend to rely on at trial or that have been specifically requested by the other party. British Columbia’s rules provide that only those documents relating to “material facts” must be produced, but the rules also permit a party to apply for production on the broader relevance standard.
Parties must also produce the content of relevant non-privileged documents. Opposing parties, however, also have the possibility to proceed to pre-trial examinations and/or to obtain the communication of various undertakings and documentation. This is commonly referred to as “examinations for discovery.” If there is a dispute over a claim of privilege, a judge will make a determination on the issue. The term “document” has been defined broadly to include both hard copy and electronic communications, videos, tape recordings, and other sources of information.
Following the documentary discovery period, parties have the opportunity to examine an opposing party (in the case of an individual) or a representative of an opposing party (in the case of a corporation or organization). It is important to note that in most provinces, each party is entitled to examine only one representative of an opposing party (even if that party is a large corporation), subject to certain exceptions requiring court approval.
Damages awards tend to be lower in Canada than in the United States, particularly in the area of tort claims (known as “extra-contractual liability” in Québec). One reason for this is that few jury trials occur in civil cases in Canada. The Supreme Court of Canada has also set an upper limit for awards of non-monetary damages (i.e., pain and suffering), which is adjusted annually for inflation. Furthermore, awards of punitive damages are relatively rare and tend to be quite modest (usually in the tens of thousands of dollars, depending on the circumstances). In Québec, punitive damages are even more modest and are exceptionally rare.
In the United States, parties in a dispute typically pay their own legal costs. By contrast, the general rule in Canadian courts is that a portion of the costs of litigation is ordered to be paid by the losing party to the successful one.
The share of costs that a losing party may be required to pay will be affected by its conduct over the course of the action. For example, the portion of costs might be higher if a party makes unsubstantiated allegations of fraud or if an offer to settle made prior to the start of the trial was rejected, particularly when the offer was comparable to or better than that which resulted from the trial.
In Québec, the successful party may claim reimbursement of court costs, but unless there was abuse in the conduct of the legal proceedings, solicitor-client costs may not be recovered.
The Federal Court of Canada and all Canadian provinces (with the exception of Prince Edward Island and the three territories) permit class actions. In all jurisdictions, the class action must be certified by the court (authorized in Quebec) in order to proceed. It is usually easier for a class action to be certified in Canada than it is in the United States, although recent amendments to Ontario law have raised the bar for certification in that province. There has been an acceleration of claims being filed in British Columbia, which has a less onerous test for plaintiffs and a no-costs regime.
There is no equivalent process in Canada to what is known in the United States as “multidistrict litigation.” As a result, it is possible that a company could face class action suits in more than one jurisdiction. Until relatively recently, defendants had few options to deal with the costs and inefficiencies of duplicative class actions seeking the same or similar relief in multiple provinces. However, Ontario, British Columbia, Alberta, and Saskatchewan have now adopted provisions to give courts these tools. These laws require courts to consider the existence of overlapping multi-jurisdictional class actions and whether it would be preferable to have some or all of the claims resolved in another jurisdiction.
Alternative Dispute Resolution: Mediation and Arbitration
Although there are many different forms of alternative dispute resolution, mediation and arbitration tend to be the most common.
In mediation, a neutral third-party mediator assists parties in settling a dispute. Mediation is a more amicable and co-operative process than other forms of dispute resolution, which are based on an adversarial model. In addition, mediation tends to focus on practical, as opposed to strictly legal, solutions to particular disputes.
Mediators do not decide cases or impose settlements. A mediation depends on the commitment and good faith of the parties involved in order to succeed. Following a successful mediation, parties generally enter into an agreement to resolve a dispute.
In certain Canadian courts, parties may be obligated to attend a mediation session as part of the litigation pretrial procedure – a requirement that is increasingly being implemented as caseloads continue to grow.
Upon request, Québec courts can provide the parties involved in a litigation with the service of a judge-assisted mediation.
Arbitration can be a highly effective means of resolving disputes between two commercial parties. It is a more formal process than mediation because the tribunal considers evidence and legal arguments from the counsel of the respective parties. In contrast to the mediation process, arbitration proceedings are legally binding and arbitration awards are enforceable.
Arbitration is generally confidential by nature with most jurisdictions requiring confidentiality unless otherwise agreed to by the parties. In certain jurisdictions, the only parties bound by a duty of confidentiality in an arbitration are the arbitrators, requiring the parties in a dispute to agree to a confidentiality agreement at the outset if desired. In any event, arbitration is private, taking the dispute out of the public eye because it is not held in the courts.
Arbitration can be faster and cheaper than litigation, depending on the nature of the dispute and the process agreed to by the parties. Arbitration offers:
- The ability to choose the adjudicator, including the ability to select industry experts as arbitrators
- Greater flexibility and control of the process (including over timelines)
- Private proceedings
- The potential for confidentiality
- Enhanced finality (usually with limited appeal rights)
- Global enforcement of arbitral awards
Parties can also choose a mutually agreeable procedural framework within which to conduct
the arbitration, including:
- The scope of the dispute
- The place of arbitration
- The procedural rules which will govern the arbitration (institutionally administered or ad hoc), including timelines
- The number of arbitrators
- The language of the arbitration
- The preferred costs system
- Availability or limitations on review of the arbitrator’s decision by the courts
Costs in arbitration usually fall into two broad categories: (i) costs of the arbitration (i.e. the costs of the tribunal and institution (if any)); and (ii) legal costs. Unless the arbitration clause provides for how costs will be allocated, costs in arbitration are generally recoverable by the successful party. Commonly, the “costs of the arbitration” are awarded in full to the successful party, whereas the “legal costs” may be reduced on the grounds of reasonableness. In determining costs, the tribunal may take into account various aggravating or mitigating factors such as: the level of success of a claim, the behaviour of the parties towards the efficient conduct of the arbitration, or the pursuit of unfounded arguments.