January 17, 2018

Business Diplomacy: Is An Agreement To Arbitrate Privately A Deal The Courts Will Enforce?

Court’s decision should reflect the parties’ deal.

When business entitles cannot reach agreement to resolve a dispute with discussions, they have a few logical options: negotiation, mediation, or litigation (whether in public court or in private arbitration). Typically, those options are tried in that order.

In the recent Alberta Court of Queen’s Bench case in Inter Pipeline v. Rural Road Construction, the Court considered an unusual application by Inter Pipeline (IP) to dismiss the claim on the basis of limitations law, after IP agreed to arbitrate the case, rather than defend the injunction the other party filed a few years prior.

The peculiar case unfolded from these facts noted by the Court:

  • IP had a right of way on certain lands, to develop a pipeline project.
  • Rural Road Construction (RRC) also had rights in the lands, but to develop the gravel resources (via a lease with the owner).
  • Those rights appear to have become at odds with one another, as IP began using its right of way by excavating to begin work.
  • RRC applied for an injunction to stop IP’s work, and to preserve its gravel rights.
  • To stop the injunction from being heard in Court, IP agreed with RRC to arbitrate the dispute privately, out of court.
  • No progress appears to have been made in the arbitration for a period of time (while IP of course blames RRC, it is unclear who caused the delay; the Court attributes fault to RRC and IP).
  • IP applied to have the Court decide that the entire arbitration and court claims are out of time on a limitations basis.
  • Surprisingly, IP attempted to say that its own agreement to arbitrate, which it signed, could not be considered notice of a claim, to stop limitations time from running.

You’re only anonymous once. Live it wisely.

So, can a company avoid its diplomatic agreement to ‘take the discussion offline’ to an arbitrator, and later try to back out?

In short: Of course not. The Court in Inter Pipeline found that IP’s argument was flawed. It found that, by signing a contract (within the 2 year limitation period originally), agreeing to arbitrate with the very party it now sought to avoid, IP knew full well of the claim, in time. IP could not renege, simply because the arbitration process itself was delayed.

Further, the Court also suggests that IP was also responsible for some of those delays (the Court found that IP did not reply to letters from RRC asking whether IP would provide RRC with time to locate information relevant to the arbitration, or whether IP wanted to press ahead with the arbitration). Hearing nothing, RRC applied to appoint the arbitrator and proceed.

IP then applied to the Court of Queen’s Bench to try to have the claim dismissed entirely.

The Court had little hesitation finding that IP’s argument lacked merit. The judge confirmed that signing an agreement to arbitrate a known dispute between the business parties is an agreement to have the claim heard, so it is ‘notice’ of a claim and stops the limitation time clock.

This is true even when the arbitration agreement is signed after the dispute occurred (as opposed to the more typical situation where the parties sign a business agreement that has arbitration as a pre-agreed dispute resolution mechanism).

In other words, the business diplomacy of taking the decision into a private, confidential, hearing room (and out the the public courts) will be enforced, even when one party has a change of heart later.

So, what can we learn from this?

The most recognisable justice is the justice you can agree upon.

Business disagreements happen. Sometimes the deal you got into becomes something you don’t recognise later. Like the proverbial river, with its every-changing nature, a business deal is also subject to the laws of time.

One way to navigate the deal, and to address changed circumstances, is to discuss those changes with the other parties impacted. That way, you can reach a negotiated solution to what is probably a different landscape for both sides!

Arbitration remains a reliable way to achieve a private resolution, where negotiations between the parties alone, or with a mediator’s assistance, do not result in a signed agreement. Courts will hold the parties to the bargain to solve the problem this way, and in many situations it can be more expedient and efficient when all parties want to move forward quickly.

We hope you have enjoyed reading this summary. Enjoy your week!

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