Originally from Arbitration Law of Canada: Practice and Procedure, Fourth Edition

PREVIEW

The essence of arbitration is that it is consensual. In order to oust the jurisdiction of the court to hear and decide disputes, a party must be able to point to an enforceable agreement wherein the parties have agreed to settle their dispute in another forum. If the parties agreed to a broadly worded arbitration agreement, then under the theory that parties have full autonomy to craft their own settlement agreement, all claims in contract, tort, equity or under a statute may be arbitrated. The arbitrators derive their jurisdiction from the parties’ agreement to resolve disputes using a third party, not from any State’s legislation, although legislation at the place of arbitration may confirm, take away, or limit that jurisdiction.  In essence, if two parties have the right to settle a legal dispute as between themselves, they have the right to ask a third party to do it for them.

This was clearly set out by the Supreme Court of Canada in a number of decisions. In Dell Computer Corp. v Union des Consommateurs,  Deschamps J, writing for the majority, noted that “[a]rbitration is part of no state’s judicial system” and “owes its existence to the will of the parties alone.” In Desputeaux v Éditions Chouette (1987) Inc.,  LeBel J, for the Court, wrote, “[i]n general, arbitration is not part of the state’s judicial system, although the state sometimes assigns powers or functions directly to arbitrators.”

It all starts with the arbitration agreement itself. As the agreement to arbitrate only becomes important once a dispute arises, the arbitration clause may well become the most carefully scrutinized and dissected provision in the parties’ commercial contract. For presumed tactical advantage, lawyers will carefully analyze the words of an arbitration agreement to demonstrate why the particular dispute should or should not be arbitrated.

The courts, depending on their own predilection, may carefully scrutinize arbitration agreements to determine whether their jurisdiction has been ousted. History shows that the more authoritarian the regime, the more it will resist allowing parties to craft their own dispute resolution mechanism, finding that only the State can and should decide most disputes.

Here lies an arbitration paradox: When two parties settle a private commercial dispute by mutual agreement, the courts have no interest in its content and play no role in its formulation. The courts’ only role is to assist if a party wants to enforce the settlement. If, however, the parties agree to have a third party privately settle the same dispute, the State and State courts believe intervention is necessary.