I. Overview

Consensual Arbitration in Quebec
By Frédéric Bachand


This website was created for educational purposes only. Its objectives are twofold: to facilitate access to the relevant sources of Quebec arbitration law and to provide information regarding the practice of arbitration in Quebec. The site is intended, first and foremost, for jurists -- whether they practice in Quebec or not. Like all other educational websites, it does not seek to provide legal advice. If you need legal advice, you should consult a member of the Barreau du Québec.

What is Consensual Arbitration?

Consensual arbitration is a dispute resolution process whereby the parties confer on one or more persons, the arbitrator(s), the power to resolve a dispute by making a decision which -- in principle -- is final, binding and enforceable, just like a court judgment. Think of arbitrators as private judges.

Consensual arbitration has to be distinguished from mediation - a dispute resolution process whereby the parties attempt to settle their dispute with the help of an independent third party, the mediator. The mediator's task is limited to helping the parties to resolve the dispute in an amicable manner; unlike a judge or an arbitrator, the mediator does not have the power to issue a final and binding decision.

Evolution of arbitration

In the past, States did not treat arbitration favourably. Arbitration was considered to be in derogation of one's fundamental right to access the public judicial system. As a consequence, arbitration was heavily regulated. For example, States were only willing to confer upon arbitral awards the same authority as that of court judgments in limited circumstances, which often did not correspond to the needs of business operators. This was the case in Canada as in many other countries.

Things have changed radically since the end of World War II. This is particularly true with respect to international commercial disputes. Most states involved in international trade have adopted legislation which is very favourable to international commercial arbitration. Resort to arbitration to resolve domestic disputes is also increasingly favoured by States.

Legislative reforms have taken place in the last fifteen years throughout Canada. All jurisdictions have adopted legislation based on a model law on international commercial arbitration prepared by the United Nations Commission for International Trade Law (UNCITRAL). Statutes facilitating and encouraging resort to arbitration to resolve domestic disputes have also been adopted by Canadian legislatures.

Reasons to Resort to Consensual Arbitration

With increasing frequency, parties to commercial disputes seek to avoid going to court. There are several reasons explaining this trend.

Reasons which are relevant to domestic and international disputes

The court system usually fails to offer procedures that are well-suited to the resolution of commercial disputes: going to court takes time (backlogs, possibilities of appeals, etc.); going to court is very costly; business operators resent the fact that they have little control over the applicable procedure (e.g. what procedural rules will apply? who will decide the dispute? what standards/rules of law will be applicable to the merits of the dispute?); going to court entails that the dispute (its background, parties' arguments, evidence, decisions, etc.) will become public; the outcome of litigation is often quite unpredictable, especially in complex commercial disputes.

Reasons which are specifically relevant to international disputes

An additional -- and very important -- problem arises when the dispute has an international dimension (e.g. because the parties reside in different countries or because the contract has to be performed in another country): where will the lawsuit be launched? In most cases, an international dispute will have sufficient contacts with more than one country to give the plaintiff a choice as to where to sue, allowing for what is commonly referred to as forum shopping. The existence of such a choice increases uncertainty, as litigation can be very different from one country to the other; it creates additional risks which raise the costs of doing business on an international scale. Therefore, parties to international commercial transactions will attempt to limit this uncertainty by agreeing in advance (i.e. when their contract is concluded) on a dispute resolution method:

"Agreeing in advance on a forum acceptable to both parties is an indispensable element in international trade, commerce and contracting" (U.S. Supreme Court, Mitsubishi Motors Corp. v. Soler Chrylser-Plymouth Inc., 473 U.S. 614 (1985), 630).

Agreeing in advance to stay out of courts by resorting to arbitration is the most effective way to limit such uncertainties, because an international treaty -- The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958) (a.k.a. the "New York Convention") -- obliges courts in virtually all countries involved in international trade) to enforce undertakings to resort to arbitration found in international commercial contracts and ii) to give effect to awards (decisions) made by arbitrators. Other methods of dispute resolution are -- generally speaking -- not treated as favourably by States. This is why nowadays, most international contracts contain a clause whereby the parties seek to oust the jurisdiction of courts while submitting to the jurisdiction of an arbitral tribunal.

Overview of the Arbitral Process

The arbitration agreement

For arbitration to take place lawfully, a valid arbitration agreement (i.e. an agreement submitting the dispute to arbitration) must have been concluded by the parties; the agreement must be in writing. It can be entered into after the dispute has arisen. But most often, the parties resort to arbitration because they agreed to do so when they entered into their contract. To be fully operative, the arbitration agreement must firstly be valid and applicable from a contractual standpoint; the parties must not only have properly consented to arbitration (existence of a valid undertaking to arbitrate), they must also have agreed to refer the dispute to arbitration (applicability of the agreement to arbitrate). The effectiveness of the arbitration agreement also depends on whether the dispute is one which is capable of being submitted to arbitration. Not all disputes can be resolved by arbitration. In every State, public policy requires that certain disputes be decided exclusively by courts. But because States tend to view arbitration quite favourably, the number of public policy limits to the arbitrability of disputes has significantly decreased in recent years.

The arbitral tribunal

The parties are free to agree on the number of arbitrators. In practice, the choice is most often between one or three arbitrators. Arbitration with a sole arbitrator has the advantage of being cheaper; it also tends to be faster. Arbitration with three arbitrators has the advantage of allowing each party to appoint one arbitrator, which tends to increase the parties' confidence in the arbitral tribunal. In principle, the parties are also free to agree on the procedure for appointing the arbitrator(s). Their freedom in that respect is not absolute, as public policy rules usually preclude agreements that confer on a party an unfair advantage (e.g. an agreement providing that all three arbitrators will be appointed by one party). The parties can agree -- and often do agree -- to delegate to a third party (such as a judge or a dispute resolution institution) the power to appoint arbitrators when disagreement occurs. Also, because they are judges, albeit private ones, arbitrators must be and remain independent and impartial; generally speaking, the standards that apply to judges also apply to all arbitrators, including party-appointed arbitrators. Moreover, arbitrators enjoy an immunity which is similar to that afforded to judges; in other words, they cannot -- as a general rule -- be held liable for their acts and omissions. Such immunity is necessary to guarantee the integrity of the process and to ensure that arbitrators will be in a position to render a decision without fear of later being sued by the losing party.

The arbitral procedure

In principle, the parties are free to agree on the applicable procedural rules. When the parties have not made any agreement in that respect, the subsidiary rules of the jurisdiction in which the arbitration takes place will apply. When agreeing on the applicable procedural rules, the parties can either draft their own rules or adopt pre-existing rules drafted by a dispute resolution institution. Some institutions also offer various administrative services in support of the arbitral process (e.g. access to rooms, assistance in appointing arbitrators, assistance in managing the payment of fees to arbitrators). Resorting to a competent and experienced dispute resolution institution will often increase the chances of the process running more smoothly. But the services rendered by these institutions are not free; therefore, resorting to institutional arbitration increases the costs of the process. Furthermore, the parties' freedom to agree on the applicable procedural rules is not absolute. The law of the jurisdiction where arbitration takes place always contains some public policy limitations to their freedom; these limitations are essentially aimed at guaranteeing the parties' fundamental right to a fair hearing (a.k.a. due process).

Privacy and confidentiality

Arbitration is generally considered to be inherently private (only the parties to the arbitration agreement can take part in the proceedings and attend hearings) and confidential (parties and arbitrators cannot disclose to third parties information regarding the arbitration, such as evidence, pleadings and decisions made by the arbitrators). However, confidentiality can never be fully guaranteed (e.g. a public company may have to reveal information about an arbitration to meet mandatory disclosure requirements found in securities laws) and the exact scope of confidentiality duties is often difficult to determine in practice.

Applicable rules

In principle, the parties are free to determine the rules in accordance with which the dispute will be decided; in international cases, they will often choose the law of a neutral State. They can even decide that the arbitrators will not have to apply any rules of law, and instead resolve the dispute in light of the solution they consider to be the most equitable one. This can possibly lead to a fairer solution, one that makes more sense from a business perspective. Moreover, the parties' freedom is not absolute. Arbitrators always have to apply rules of public policy (i.e. mandatory rules, which cannot be derogated from, such as anti-trust laws) as States will, understandably, refuse to give effect to an arbitral award that disregards their public policy.

The arbitral award

An award usually has to be made in writing, but the parties can agree that the arbitrators will not have to issue reasons. Most jurisdictions -- including Quebec -- respect the finality of the arbitral process and prohibit appeals from awards. This means that the correctness of the arbitrators' decisions cannot be second-guessed by a judge. This is necessary to give full effect to the parties' desire to stay out of court. Even when the award cannot be appealed, judicial review is not entirely excluded. Such review is usually limited to essentially three things: i) ensuring that the arbitrators had jurisdiction over the dispute; ii) ensuring that the procedure was conducted in accordance with the parties' agreement and the requirements of fundamental procedural fairness (due process); and iii) ensuring that the award does not disregard rules of public policy, such as anti-trust laws. Court review can occur either because the losing party decides to attack the validity of the award directly, or because the losing party resists an attempt by the winning party to enforce the award.

Advantages and Limits to the Effectiveness of Arbitration


It would be wrong to assume that arbitration is always fast. But, in most cases, it is certainly faster than going to court because the pre-trial phase (exchange of written pleadings, discovery, etc.) is usually shorter, a hearing on the merits can be held as soon as the case is ready (the parties can wait for more than one year just to get a hearing date before the Quebec Superior Court), and it is usually not possible to appeal awards. The flexibility offered by arbitration is a significant advantage. The parties control many procedural aspects over which they have no control when they resort to litigation (e.g. language of proceedings, rules of procedure, rules governing the merits, rules of evidence, place of hearings). The parties also have control over who makes the decision; they can choose candidates -- lawyers or not -- who are experienced in resolving commercial disputes, or in a specific technical field with which the dispute is connected, thereby increasing the predictability and efficiency of the process. The privacy and confidentiality of the arbitral process is another important advantage over litigation. Is arbitration cheaper than litigation? Not always. Lawyers are almost always involved and good arbitrators command hefty fees (especially in international cases). On balance, arbitration is probably cheaper than litigation; however, there is a tendency to exaggerate the importance of this advantage.

Limits to the effectiveness of arbitration

As was mentioned, not all commercial disputes can be resolved by arbitration. For example, before the Supreme Court clarified the issue in March 2003, it was not certain whether disputes involving copyright could be submitted to arbitration in Canada. Furthermore, arbitration is sometimes inefficient when the dispute concerns more than one party. This can occur whenever a commercial transaction involves, directly or indirectly, more than one corporation (e.g. joint ventures, construction projects, financed sales). Problems often arise because not all the parties involved in the dispute have agreed at the outset to resort to arbitration. Since the arbitrators can only assert jurisdiction over those that are parties to the arbitration agreement, some aspects of a same dispute may have to go to litigation while others go to arbitration; this is highly inefficient, as costs are increased and inconsistent decisions can be made. However, these problems can be avoided by properly drafting the arbitration agreements. Finally, arbitrators do not have the same powers that judges have to compel witnesses or to issue injunctions during the proceedings. The parties thus sometimes have to go to court during the arbitral process; this complicates matters and inevitably causes some aspects of the dispute to become public.

© Frédéric Bachand

Back to top