Previously published in The Lawyers Weekly, March 28, 2008
The Ontario Court of Appeal has advanced the pursuit of more efficient and cost-effective dispute resolution by confirming that agreements to engage in the combined mediation/arbitration process known as "med-arb" will be enforced.
In Marchese v. Marchese [2007] O.J. No. 191, the court held that an agreement to submit to med-arb was enforceable despite a provision in the domestic arbitration statute that prohibits arbitrators from conducting any part of an arbitration as a mediation. Ontario's domestic arbitration statute is quite different in this regard from its international commercial arbitration statute, which expressly permits, with the parties' consent, the use of mediation during an arbitration to encourage settlement.
The court reasoned that if the prohibition applied (a point it did not need to decide), it could be waived. Marchese makes it clear that disputing parties can expressly opt for med-arb, in which case the domestic arbitration statute prohibition against conducting any part of an arbitration as a mediation is waived.
The decision is a welcome one. Businesses need innovation and flexibility in the methods available to resolve disputes. Med-arb involves two steps: a mediation and, if necessary, a subsequent arbitration in which unresolved issues are determined by the same person acting as arbitrator.
In many cases neither the courts nor arbitration provides the desired efficient and cost-effective resolutions, and mediation alone does not always achieve a resolution. The hybrid process of med-arb provides another option that in the right circumstances can achieve results that neither mediation nor arbitration alone could achieve.
It has several other advantages: it is often less costly and more efficient than arbitration. Since only issues not resolved by the parties are adjudicated, it is especially desirable to assist in the preservation of an ongoing relationship. It provides a final resolution to a dispute, a conclusion not assured in mediation. Using the same neutral party saves costs and time since that person is familiar with the case.
There is a practical concern, however: med-arb requires a neutral third party who is adept at both mediation and arbitration. It also raises issues regarding natural justice and impartiality. The mediation often involves private caucusing between the mediator-arbitrator and each party. The right to know and have a reasonable opportunity to respond to the other side's case are considered essential to fairness and due process in an adjudication. With med-arb, there is a danger that in the adjudication, the mediator-arbitrator may consider information obtained during private caucusing in the mediation, to which the other party has not had an opportunity to respond.
Even if by procedural and ethical rules the mediator-arbitrator is not permitted to consider such information in the arbitration, the parties may not be convinced that it could be completely discounted.
Ontario's domestic statute provides in s. 19 that "the parties shall be treated equally and fairly" and "[e]ach party shall be given an opportunity to present a case and to respond to the other parties' cases." The parties cannot agree to vary or exclude this provision. Likewise, Ontario's international statute contains the fundamental mandatory provision in Article 18 that "the parties shall be treated with equality and each party shall be given a full opportunity of presenting his case. Article 34 states that an award can be set aside if a party was "unable to present his case."
It remains an open question whether procedural fairness requirements may tie the mediator-arbitrator's hands in the mediation and impede (or preclude) private caucusing. Marchese did not discuss this and it is not addressed in Ontario's international statute.
An Ontario court would likely find that procedural fairness can be achieved if the mediator-arbitrator, when arbitrating, takes no account of material information obtained in private caucusing unless the other party has been informed and had an opportunity to respond. A court would intervene only if there were persuasive and cogent evidence that the mediator-arbitrator relied on such information.
Judges regularly exclude evidence that they have heard and rule on the admissibility of evidence (including alleged settlement discussions and privileged communications) that they must hear before they can rule.
However, med-arb presents greater challenges. The party not present cannot know what information has come from a private caucus. Only the mediator-arbitrator can ensure that such information is not considered unless that party is informed of it and permitted to respond.
These concerns demonstrate the importance of a med-arb being conducted by a skilled mediator-arbitrator with sound judgment and integrity who is trusted by the parties.
Ontario courts will likely assess equality and fairness complaints arising from a med-arb in a flexible and pragmatic manner, and look at the whole picture to determine whether the complaining party knew the material information that had been provided in private caucus and had a reasonable opportunity to respond. What should count is substance, not form.
Marchese recognizes med-arb as a distinct process and confirms that agreements to utilize it will be enforced. As businesses, corporate counsel and outside counsel look for innovative ways to resolve disputes more efficiently and cost-effectively, the recognition and acceptance of med-arb may be an important step forward.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
