What’s new in ADR?

November 2008

By Paul Godin
ADR Chambers/Stitt Feld Handy Group

I: ARBITRATION

The Supreme Court of Canada will soon decide the leave to appeal application in Yugraneft v. Rexx Management, a case with international consequences for arbitration law. The central issue relates to the enforceability of international arbitration awards in Canada. At issue is the applicability of local (provincial) statutes of limitation on the commencement of proceedings to enforce arbitration awards made internationally.

Canada, along with 143 other countries, is a signatory to the New York Convention (United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards), which has successfully governed many arbitrations internationally for 50 years. The New York Convention has provided reliability and certainty of enforcement of awards across a wide variety of countries. Enforceability, subject to certain exceptions carved out, provides the confidence for commercial parties to contract in foreign jurisdictions in which the laws and courts may be less than reliable.

Other arbitral provisions such as the Model Law on International Commercial Arbitration adopted by the United Nations Commission on International Trade Law (UNCITRAL) may also be affected by this decision. Canada has adopted the model law, wholly or partially, in all provinces and territories, as in Ontario with the International Commercial Arbitration Act.

In August of 2008 the Alberta Court of Appeal in Yugraneft ruled that if proceedings to enforce a foreign arbitral award are not commenced within Alberta’s two year statute of limitations, the proceeding will be statute-barred. This decision, if upheld at the Supreme Court, could have a large impact on enforcement of arbitral awards across Canada and internationally, as it arguably departs from the New York Convention which does not list delayed enforcement proceedings as a barrier to enforcement. If Yugraneft becomes the law in Canada, arbitration will be less attractive to international companies with a tie to Canada.

II: NEGOTIATION

A forthcoming article in the Journal of Personality Research (Elfenbein, Curhan, Baccaro, Eisenkraft, & Shirako) suggests that variation in personality traits can account for almost half of the difference in results from one negotiator to the next. Amongst other things, the belief that you can learn to negotiate better tends to be associated with improved results relative to the belief that negotiation skill is innate. Overall, negotiators who took initiative and played an active role (by asking questions, proposing options, reacting to offers etc.) did better. Another tendency is that people pleasers tend to do worse in the absolute sense than “pro-self” negotiators, even in collaborative contexts. Highly intelligent negotiators tended to be better able to “create value”, but were actually less likely to “claim value.” Another trend was for “thin-skinned negotiators (sensitive about saving face) to walk away from deals more readily than others even when deals were objectively reachable. One interesting point is that “fixed traits” like age, gender and race were less likely to have a significant impact on results than the other traits mentioned above.

II: MEDIATION

A) INTERNATIONAL

A very interesting article entitled “Let’s Not Make a Deal: An Empirical Study of Decision-Making in Unsuccessful Settlement Negotiations” appeared in the September 2008 edition of the Journal of Empirical Legal Studies. Essentially, the study compared the value of offers that were rejected in settlement discussions and the ultimate dollar value of damages awards in the same cases. The statistics are telling. When facing a choice between accepting a settlement offer and going to trial to get a result there, plaintiffs who chose to go to trial ended up worse off at trial in 62% of the cases. Similarly defendants who refused the offer and went to trial ended up worse off in 24% of the cases.

While it sounds like Defendant counsel and their clients are much better decision makers than Plaintiff counsel and their clients, another statistic should give the defence pause as well. The average cost of the Plaintiff-side mistake (difference between the offer refused and the amount awarded) was $43,100. Although defendants were wrong less often, the cost of their mistake was much bigger on average, about 1.1 million dollars, almost 30 times greater.

The study looked at a wide variety of contributing and mitigating factors and makes a good read if you ever want to have a rational discussion with parties about the decision to settle or push forward to trial.

B) Ontario

In Ontario, the Civil Rules Committee is contemplating a change to Rules 24.1 (Mandatory Mediation) and 77 (Case Management). Submissions have been sought from the Ontario Bar Association and other stakeholders. There is no way that any rules design could handle the complexity of civil litigation in Ontario perfectly the first time round, so the inevitable adjustment took place in Toronto (where challenges were more evident than in Ottawa) with the introduction of the Practice Direction from Justice Winkler. Once again, the wheel has turned, and the Rules Committee is trying to capture the best of both regimes. There may also be a push to move mandatory mediation province wide but that remains to be seen and a working group to study the issue may be forthcoming shortly. For more details about the proposed Rule 24.1 changes, read on.

The comments on the proposed changes to Rules 24 and 77 set out below are not intended to suggest that the first two regimes were in any way “bad”, but are merely intended as suggestions on how to further improve those systems, based on the practical experiences of the last few years and on review of studies on mandatory mediation around the world, including the evaluation of the Ontario Mandatory Mediation Program Pilot Project.

Definitions

For clarity, I have tried to use the following phrases where possible:

Original Rule(s) – means the first version of Rule 24.1 that was introduced in Ontario, effective January 4, 1999.

Practice Direction- means the Practice Direction for Backlog Reduction that has governed case management and mandatory mediation the last few years, effective since December 31, 2004.

New Rule(s)- means the newly proposed draft wording for Rules 24.1 or 77

Mediation Studies

On the front end, I should state my overall view that the Practice Direction (which was understandably designed to give more flexibility back to counsel and to ease the burden on Court time for Masters and judges) inadvertently lost some of the proven benefits of early mandatory mediation (statistically documented in the evaluation of the Ontario Pilot Project). My personal bias is a desire to improve the system to maximize the benefits to the parties, while not placing undue burdens on the Court’s resources, and maintaining flexibility for counsel to the extent possible (in that order).

Studies around the world and particularly that of the Ontario Pilot Project clearly demonstrate the success and benefits of early mediation. In Toronto and Ottawa, on average, more than 40% settled at mediation or within 7 days thereof. Another 20% significantly narrowed the issues, something I have witnessed many times even when parties don’t settle. If my own practice is any measure, that number would be even better these days if the study was replicated because counsel use mediation better and are more educated on the choice of mediator.
The comparison to the control group in the Pilot Project showed that there was a significant increase in early settlement in the Rule 24.1 stream at the 6 month mark across almost all types of civil case. Three times as many Rule 24.1 negligence cases had settled relative to regular negligence cases within 6 months of start time. Twice as many medical malpractice and commercial cases in the mediation stream had settled by 6 months. Other than Trusts and Wrongful Dismissal cases, all other areas tracked had at least a 25-30% improvement in settlement results at 6 months, decreasing not only costs to parties, but demands on Court time.
The Pilot Project study clearly showed that from the litigants’ perspective (and also counsel), with mandatory early mediation there was:
1. a clear increase in early settlements
2. a clear savings on overall cost of litigation; and
3. a clear trend to earlier settlement
Those clear benefits to the parties of mandatory early mediation should not be lost in order to improve flexibility for counsel, when we can improve the system design to increase that flexibility significantly, without losing the clear benefits of a push for early mediation.

Arguably, lawyers will mediate early when appropriate even without strict timelines, but several British studies on mediation suggest otherwise. Even when parties were actively referred to mediation by the Court (but with a right to reject the referral and opt out), more than 80% opted out. What is disturbing about this statistic is that we know in Ontario that about half of mandatory mediations settled within 90 days of the filing of the first defence or close to it. Statistically, that means about half of the cases that opted out would likely have settled at mediation. Parties likely spent more time, money and stress on those files as a result, even if they settled before trial. Arguing that they did better as a result of waiting doesn’t really work either, because for every dollar more that one side ends up getting, the other is paying a dollar more.

Ultimately, there were a few key challenges related to mediations under the Original Rules (discussed below) that could have been resolved without losing the benefits of early mediation and while maximizing the effectiveness of dispute resolution efforts, so that cases are mediated as early as is possible and appropriate to the case.

The 24.1 Issues

On the mediation side, there were a number of issues that cropped up again and again under the Original Rules, using up Court time and frustrating parties, including:

1) Concerns about tight timelines;
2) Changing mediators;
3) Inadequate Time to Mediate Once Appointed;
4) Identifying Who Should Attend;
5) Dealing with Non-Compliant Parties (particularly payment of fees); and
6) Breaches of Confidentiality.

Concerns about Tight Timelines

Counsel often felt hemmed in by unreasonably tight timelines that did not reflect the reality of their cases or their practice. The 90 day timeline to mediate with a single extension, on consent, of 60 days was considered too tight by many. Another complaint heard was that some Masters dealt with requests for extensions quite rigidly in an effort to enforce the policy behind the rule encouraging early mediation.

I propose a three tiered way to balance the desire for flexibility with the desire for cost and time-effective litigation.

Tier One is the choice of a default baseline time period for the mediation to take place that balances a push for early mediation with practicality.

Tier Two is a simple and reasonable method of extending that time where necessary that does not waste the Court or parties’ time and does not unreasonably extend the duration of the action (by capping this “easy” extension to avoid creating an easy out from early mediation).

Tier Three is a quick and easy process for parties to get court approval for further extensions when necessary in the circumstances of the case.

Under this tiered system, there would be a strong push for early mediation and in those few cases where the default timeline is too tight, there are low cost methods to extend the time as needed without having to bring a full blown motion, and without giving a blank cheque to counsel to write their own timeline with no supervision to protect litigants’ interests in fast cost-effective resolution.

Tier One- Initial Time to Mediate

The New Rule 24.1.09(1) allows 180 days after the filing of the first defence for a mediation to take place. This change is a step in the right direction, as it provides more flexibility than the Original Rule (90 days) but does not throw it out to 2 years like the Practice Direction.

Tier Two- Right to Extend Time

On can incorporate scheduling flexibility by giving parties the right (either unilaterally or on consent) to a reasonable extension of time to choose a mediator or to mediate. One challenge with making the extension conditional on consent is in cases where all parties are not represented. This created practical difficulties for all concerned under the Original Rule. One reason people needed more time was often to locate or bring in certain parties. Requiring the consent of all parties will be particularly challenging if the time starts running after the filing of the first defence instead of the close of pleadings. It also creates another procedural step of chasing the other side to get that consent (an extra cost for all concerned).

If I read New Subrule 24.1.09(3) correctly along with new (5), (6) (6.1) and(7.1), the New Rules would allow parties to extend the time on consent with no clear time limit at all, other than that the parties must file a notice about mediation “before setting the action down for trial”. Such an open-ended rule opens up an easy to use bottomless pit of time that may result in many counsel simply putting off mediation so they have one less task to worry about. In my view, it would be better to allow a reasonable and easy to use extension, but with a cap of 90-180 days, keeping their feet to the fire.

The Original Rules aimed at having documentary discovery prior to the mediation and many counsel were unable to get that exchange completed prior to those early mandatory mediations, one of the main reasons behind many failures to settle. I’m told anecdotally by Ottawa mediators that in Ottawa, the Bar adjusted quickly and learned to do more work on the front end of cases, which is a major reason why Ottawa had a higher settlement rate than Toronto’s large and disparate Bar during the Pilot Project. In my own experience, I certainly noticed that, by the end of the Original Rule regime, many Toronto litigation counsel were also adapting and doing more on the front end, so that concern may be lessened now.

One other objection that some counsel had was that oral discoveries were necessary in many cases to truly discuss settlement reasonably. Whether or not that is true, if we move to a model with 180 days plus an easy extension period with a reasonable cap, the vast majority of cases could be mediated at either end of oral discoveries (before if the benefit does not warrant the added cost, or after if it does). By adding a simple cost-effective way to get a Court extension for even more time, there should be no serious objection to the timing requirements of mediation in the New Rule.

I highly recommend having a simple easy to use extension process, with a reasonable cap of 90-180 days instead of an unlimited discretion.

Tier Three- Court Approval of Extension

In Ottawa, my understanding is that when a timeline concern arose on mediations, a simple phone conference call with Master Beaudoin was routinely used to amend the timing of mediations beyond what the rules initially called for- not too burdensome on counsel or on the Court. The Master was relatively flexible with parties in addressing such requests. To increase flexibility, could there not be simplified phone procedures and clear guidelines for how Masters should generally approach this common issue?

Changing Mediators

The second issue under the Original Rules arose occasionally when parties were late in picking a mediator. Counsel received the notice of assignment by the Court to a roster mediator they weren’t actively interested in using, triggering a request by them to change mediators. We as roster mediators were often the first to get this request when we tried to schedule a date with the parties. Anecdotally, tension and frustration arising from this issue was quite common.

Under the Original Rule, the parties had to get an order from the Court, allowing the replacement, which was a waste of time and effort on all fronts. In such cases, why not find a simpler change procedure. The timelines for a new mediator would be the same. From the system’s perspective, the Court doesn’t actively care if the parties use a particular mediator. The Court only wants to make sure the parties mediate in a timely manner. If that is the case, there is no good policy reason to force parties to use an Assigned Mediator if they want someone else. A number of studies around the world have shown that mediations with voluntarily selected mediators are somewhat more likely to settle than with assigned ones. There is no reason to oppose such a choice as long as the parties are still bound to the same timelines under the rules.

One possible objection from the Assigned Mediator is that they have lost their spot in the roster rotation and spent time and effort on the file.

To avoid even the possibility of such an objection to the change, the New Rule could allow change from an Assigned Mediator as a matter of right upon filing a notice of the change with consent by the parties (with a CC to the Assigned and the newly appointed mediator and to the Mediation Coordinator), whether the mediator consents or not. To minimize the effect of the consent change, the change notice should serve to put the Assigned Mediator back to the top of the roster list. The Rule could also include a stipulation that any reasonable cost of the Assigned Mediator should be paid jointly by the parties, if requested, but such costs are unlikely to be much if anything in such cases.

Inadequate Time to Mediate Once Appointed

New Subrule 24.1.09(7.1) gives parties 90 days to have the mediation after the appointment of an Assigned Mediator. Extending that timeline from 90 days to 120 days would also be wise, because under the Original Rule it was often a challenge to find an agreeable date in the 80+ days after assignment. As a result, the general lack of enthusiasm from parties about having an unfamiliar mediator assigned was aggravated when the first discussion with the assigned mediator was a struggle over dates. Both mediators and counsel, not to mention parties, are often heavily booked in the 3 months out from any given date. Thirty more days will not hurt the timeline for justice, but would significantly ease the date selection process, making it more likely mediations proceed without bad blood and without wasted administrative time trying to squeeze in a date in clogged calendars.

Application of the Rule- New Rules 24.1.09.1 and 24.1.04

Wrongful Dismissal and Simplified Rules Cases

In my view, mediation should be mandatory for wrongful dismissal and simplified rules actions. In the last two years, all such cases that I mediated have settled at mediation, except for two or three cases with either a party that did not attend or a particularly strong personality. The costs in issue relative to the costs of trial make these cases particularly amenable to mediation.

With respect to the timelines for such cases, the Original Rule gave more time to hold a mediation (150 days from close of pleadings) in Rule 76 and wrongful dismissal cases than in regular actions (only 90 days after first defence). If we are moving to 180 days for regular actions (which I think is wise), it might be simplest to put all cases, including the 24.1.09.1 cases through a single set of timelines and procedural rules. It would be less confusing for counsel, the court, and mediators.

General Application

The scope of application of New Rule 24.1 needs to be clarified. It is not clear from New Rule 24.1.04 if all cases (in Toronto for example), are going to be “assigned to mandatory mediation by the registrar” under the direction of the regional senior judge or only some cases. Is a further defining practice direction in each jurisdiction expected to clarify the scope of application of New Rule 24.1 in each jurisdiction?

In any case, the New Rule could have a clearer direction on which cases are or are not subject to Mandatory Mediation. This comment also applies to 24.1.09.1(3) that revokes 24.1.09.1 on July 1, 2009. Do the wrongful dismissal cases default to subrule 24.1.04 on that date or do they get removed from the scope of 24.1 entirely? It was not entirely clear from the draft New Rule. This should be clarified.

Overall, they should all be covered by mandatory mediation, with a single flexible but not overly lenient set of timelines and simpler court approval processes (as described above).

24.1.11 Who Should Attend

To reflect the practical realities of the insurance defence litigation world, the wording of New Rule 24.1.11 (1) and (1.1) should be adapted to remove the technical requirement for both the party AND the insurer making the decision to be present (which appears to be the letter of the rule under the current and New Rule wording). This rule can create large burdens when parties may be geographically distant and singularly uninvolved in the case. It also does not reflect current practice in the Insurance bar when the person with real authority is the insurer funding the defence and instructing counsel. As the rule currently stands, it can be used as by plaintiff counsel to pressure an insurer to bear unnecessary procedural costs (by forcing the party to be brought). As mediators, we may have to choose between ignoring the letter of an impractical rule or enforcing it and aggravating at least one party.

A better wording might be similar to proposed New Rule 77.08(2) which refers to “the parties, or a representative of the parties responsible for making decisions regarding the proceeding and instructing the lawyer”, or something in that vein. To prevent abuse, the clause could be limited to cases involving insurers.

Alternatively, one could instead simply change 24.1.11(1.1) by adding a sentence such as “Notwithstanding (1) above, where such an insurer is not contesting coverage of their insured party and the applicable limits of insurance in question are not likely to be exceeded by a settlement at the mediation, the insured party is not required to attend.”

Payment where Non-Compliance

Currently, if a party fails to attend a mediation and a certificate of non-compliance is issued by the mediator, the mediator is required by s. 5 of the Regulation to Rule 24.1 to charge the cancellation fee to the non-compliant party. As a result, the mediator arguably must refund the innocent party their half of the mediation fee and charge the whole mediation fee to the non-compliant party. The mediator must then invoice (and chase) the non-compliant party for those cancellation fees. This situation is not very fair to the mediators, who may end up not getting paid at all after preparing for and attending at a mediation.

The New Rule should make it clear that, in the event of a certificate of non-compliance being issued by the Mediator, the mediator need not refund their mediation fee to the innocent party. Otherwise, the burden of getting the full fee from the breaching party is now on the mediator. If the party was non-compliant because they never showed, the chance of the mediator getting paid anything is slim. In roster assignment cases in particular, this will be a significant risk. Chasing a $600 receivable for a service the party didn’t want in the first place is an unenviable task with almost no chance of enforcement currently.

Instead, the Rule should also be clear that the innocent party can apply to the Court to have its costs (and its half of the mediation fee) of the mediation paid by the non-compliant party. In terms of who should bear the risk of such default, the party who is already engaged in the lawsuit (and is seeking costs generally) is best situated to seek that mediation fee from the offender.

Consequence for Breach under 24.1.14

The New 24.1.14 should contain a clause stating that mediations are ‘confidential’, unless the parties otherwise agree (right now they are just “without prejudice” under the rule). Making them completely confidential without the right to contract out would limit the right of parties to disclose information to necessary people like relatives, financial advisors etc.

A related issue is that the Court currently lacks the power to enforce the without prejudice provision of subrule 24.1.14, a challenge made apparent by the Court of Appeal in Rogacki v. Belz, (67 O.R. (3d) 330). Somewhere in New Rule 24, the Court should be given powers to remedy breaches of 24.1 generally (similar to the specific powers under 24.1.13 for non-compliance certificates).

Transition to New Rules

For cases currently in the system when the change to the New Rule comes into effect, there needs to be clarity as to which version of the rule will apply.

New Rule 77 Proposed

The changes to Rule 77 are subtle, but could be significant. One change is that a mediation might be requested from the Court by a single party (as opposed to “the parties” on consent). This right to unilaterally move the process forward has been adopted by a number of other jurisdictions around the world, particularly when they do not want to mandate mediation in all cases, but want to make it easy to get if desired. How it fits in with Rule 24.1 remains to be seen.

Keep an eye out for the next update on What’s New in ADR!

Paul Godin :: About Author :: Email

2 December 2008 | News & Articles | Comments

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