Herb Silber
Tuesday, March 18th, 2014    Posted by Herb Silber (posts)
Herb Silber
Herb Silber brings a strong combination of experience, knowledge and empathy to the arbitration process as Arbitrator or Counsel. Herb’s approach creates the positive, respectful atmosphere critical to a successful arbitration process.

This is the third and final installment in the series on the topic of how arbitrations can be made more cost effective and efficient. The previous two articles considered strategies that could be deployed at the time the arbitration clause is negotiated and inserted in an agreement and at the time the dispute arises.

The biggest difference in the strategies during the arbitration itself is that this is the forum in which the Arbitration Panel has the most active role. At this stage the parties will have agreed, or will have been guided by the Arbitration Panel, as to the shape of the process and rules that will inform the Arbitration, so it leaves the greatest scope for the Arbitration Panel to exercise their discretion to assist in making the arbitration both cost effective and efficient. The Panel can, by their skill and creativity be part of a solution, or conversely, be part of the problem. The overarching principle that arbitrations are governed by can be found in Rule 19 (or a variation thereof) of the Rules of the BC International Domestic Arbitration Centre (BCICAC) which states:

  1. Subject to these Rules, the arbitration tribunal may conduct the arbitration in the manner it considers appropriate but each party shall be treated fairly and shall be given full opportunity to present its case.
  2. The arbitration tribunal shall strive to achieve a just, speedy and economical determination of the proceeding on its merits.

 

It is important for both Counsel and the Arbitration Panel to always be mindful of this rule when they are considering how the Arbitration will be conducted, both prior to the Hearing and at the Hearing. Rule 19 provides a balance between equity and efficiency, so that while each party must be treated fairly, they must also recognize that the arbitration process does not guarantee perfect justice.

Rule 19 gives the Arbitration Panel the discretion in the procedure to use in adopting its decisions. As an example, there is Authority to support the proposition that the Courts should not review an interlocutory ruling (not being an “award”). However, given that Arbitration is built on a consensual process, the experienced Arbitration Panel, should always try to encourage the parties to come to or build a consensus as to how the arbitration should proceed. The ability to do this separates the good arbitrators, who will be sought out, from others who do not have this mindset or skill.

Some ideas that should be considered by the Arbitration Panel, with the participation of the parties, would include the use of written submissions wherever possible, including having the Hearing done by way of a written hearing. This could be particularly useful if the facts are really not in dispute and could certainly result in a saving of time and costs. Other ways to make the Arbitration more cost effective may be to carefully consider, what if any cross examination may be needed and should there be time limits on it. Where expert witnesses are retained by both parties, should they meet and try to provide a “joint report identifying those matters which are not in dispute and those which are in dispute.”[1]

The ideas presented in the previous paragraphs are but a few that could be considered by the Arbitration Panel, working in conjunction with the parties to ensure that the Arbitration is cost effective and efficient, while still maintaining the important touchstone of “fairness”.

[1] Rule 27(3) BCICAC Rules

Tags: , ,

Posted by Herb Silber (posts) | Filed under Litigation and ADR | ...
Shafik Bhalloo
Tuesday, January 7th, 2014    Posted by Shafik Bhalloo (posts) and Devin Lucas (posts)
Shafik Bhalloo
Shafik Bhalloo has been a partner of Kornfeld LLP since 2000. His practice is focused on labour and employment law, and on commercial and civil litigation. He is also an Adjudicator on the Employment Standards Tribunal and an Adjunct Professor in the Faculty of Business Administration at Simon Fraser University.
Devin Lucas
Devin Lucas maintains a general civil litigation practice with a focus on corporate and commercial litigation and landlord tenant and real property disputes. His commercial litigation experience includes contractual disputes, employment matters, and debtor-creditor law.

 

by Devin Lucas and Shafik Bhalloo

In IBM Canada Limited v. Richard Waterman[1], Richard Waterman (“Waterman”) was employed by IBM Canada Ltd. (“IBM”) for approximately 42 years before he was dismissed on March 23, 2009 without cause.  Waterman, aged 65, was given two months’ notice.  Prior to his dismissal, Waterman had been a long-standing member of IBM’s defined benefit pension plan (the “Plan”).  According to the terms of the Plan, IBM contributed a portion of Waterman’s salary to the Plan on his behalf.  The Plan guaranteed certain benefits upon Waterman’s retirement.  Upon termination, Waterman was eligible for a full pension; however, both his employment contract and the Plan did not address whether Waterman could receive his salary and pension concurrently.  Waterman refused to accept the severance package offered by IBM and filed suit, claiming damages for wrongful dismissal.

 

Trial Decision

One of the primary issues before the British Columbia Supreme Court was whether the pension benefits paid to Waterman should be deducted from an award for damages for wrongful dismissal.   After a summary trial hearing, the Trial Court awarded Waterman 20 months’ notice and refused to deduct the pension benefits paid to Waterman during the notice period in determining his damages.  With respect to the issue of the deductibility of pension benefits, the Trial Court held that it was bound by the British Columbia Court of Appeal decision in Girling v. Crown Cork & Seal Canada Inc. [2]  In Girling, the Court of Appeal had expressly rejected the argument that retirement benefits must be deducted from an award of damages.  The Trial Court cited Girling, at paragraph 46, as follows:

It was argued on behalf of the employer that the governing principle in awarding damages for wrongful dismissal is prima facie the amount the employee would have earned had the employment continued, in this case, until the end of the notice period.  It was submitted that this employee would not have been entitled to receive a retirement pension while still working and receiving pay. In short, an employee is not entitled to pension and pay at the same time and without deduction one from the other.  I do not accept this.

I am in accord with the resolution of this conundrum by the Chambers judge who determined that the pension benefits of the employment contract are collateral benefits of the employment contract which should not be considered income and should not be deducted from damages which are income in lieu of notice. The damages (pay in lieu of notice) flow from breach of the employment contract and the collateral pension benefits are payable pursuant to the contractual arrangements therefor. They are not to be modified by the appearance of duplication.

In the Trial Court’s opinion it was bound by Girling and noted that until a higher court holds to the contrary, pension benefits are not deductible from an award of damages for wrongful dismissal.

The British Columbia Court of Appeal Dismisses Appeal

IBM appealed the decision to the British Columbia Court of Appeal and asked for an order that pension benefits paid to Waterman during the applicable notice period be deducted from the award of damages against IBM.   Madam Justice Prowse, writing for a unanimous court, dismissed IBM’s appeal.  In so holding, Madam Justice Prowse found that the pension benefits paid to Waterman were not a substitute for salary, nor were they payments made in lieu of salary.

According to Madam Justice Prowse, whether or not a dismissed employee would be entitled to both salary and payment of his or her pension benefits during the notice period turns on the interpretation of the contractual relationship between the employer and the employee.  As noted above, there was nothing in the Plan or the employment contract that prohibited Waterman from receiving pension benefits and salary simultaneously.

Madam Justice Prowse went on to hold that it is not inherently contradictory for an employee to receive both a salary and pension benefits and, in fact, there are many examples of that occurring in today’s workforce, including employees receiving statutory pension benefits, private pension benefits from employment, and payments from an employer where the employee has earned a pension, retires, and is subsequently hired back.

In obiter, Madam Justice Prowse briefly considered broader policy arguments and stated at para. 64:

[64]   I would add that I do not take the position that Mr. Waterman is entitled to his pension benefits because it would be “wrong” for IBM to receive a set-off of these benefits against salary.  In other words, my decision is not predicated in any way on the concept of punishing a wrongdoer.  I do not think that notions of “right” and “wrong” are useful in dealing with what is essentially a contract analysis.  I note as a practical matter, however, that if pension benefits could be deducted from salary in circumstances such as these, the result could be viewed as an invitation to employers facing economic hardship to terminate senior employees with many years of service who have vested pension rights and entitlement to a significant pension, rather than more junior employees without vested rights, since laying off the former would result in a significant offset of pension against salary in estimating damages for wrongful dismissal.  A policy argument could be mounted for arguing that the employment contract should be interpreted in such a way to avoid such a result, but no such policy argument was advanced in this case.

 

The Supreme Court of Canada Decision

On Appeal by IBM, the Supreme Court of Canada considered the issue of whether Waterman’s pension benefits should be deducted from the wrongful dismissal damages payable by IBM.  In a 7-2 divide, the majority of the Supreme Court of Canada dismissed IBM’s appeal and ruled that Waterman’s pension benefits were not deductible.

Justice Cromwell, writing for the majority, held that employee pension payments, including payments from a defined benefits plan, should normally not reduce the damages otherwise payable for wrongful dismissal.  Justice Cromwell found that pension benefits are a type of deferred compensation for the employee’s service and can be likened to a form of retirement savings.  Justice Cromwell rejected the proposition that pension benefits are intended to protect an employee from wage loss due to unemployment.  According to Justice Cromwell, two factors weighed heavily in favour of not deducting Waterman’s pension benefits from his damages award.  Firstly, Waterman had contributed to the Plan from his salary.   Secondly, as noted above, pension benefits are not intended to indemnify an employee for lost wages.  On this basis, Justice Cromwell concluded that Waterman’s interest in the pension benefits had similar hallmarks to property rights and, accordingly, Waterman had enforceable rights over the benefits.

Justice Cromwell briefly touched upon certain policy concerns.  Specifically, Justice Cromwell expressed unease regarding possible incentives for employers to terminate employees possessing pensions rather than non-pensionable employees and stated at para. 93:

[93]   These factors are also relevant here, although, in this case, they support not deducting rather than deducting the benefits. Unlike in Sylvester, non-deduction in this case promotes equal treatment of employees. If deduction is permitted, an employee who is eligible to receive his or her pension but has not reached 71 years of age can, by means of wrongful dismissal, be forced to retire and draw on his or her pension benefits. By contrast, an employee who is not entitled to his or her pension receives either a deferred pension or the commuted value of it plus full damages for wrongful dismissal and an employee over the age of 71 receives both pension and employment income.  Deducting the benefits only in the case of employees in Mr. Waterman’s situation would constitute unequal treatment of pensionable employees. Moreover, deductibility seems to me to provide an incentive for employers to dismiss pensionable employees rather than other employees because it will be cheaper to do so. This is not an incentive the law should provide. While this is a broader policy consideration, it is directly related to the benefit in question and has a reasonable basis in fact.

In a strong dissent, Chief Justice McLachlin and Justice Rothstein found that Waterman’s pension benefits should be deducted from the calculation of his damages award for wrongful dismissal.  The dissent focused on the governing principle of damages in the case of breach of contract, which is to put the non-breaching party in the position he or she would have been in had the contract been performed.  By declining to deduct Waterman’s pension benefits, the dissent ruled that Waterman was receiving a windfall, and that Waterman would get more than he bargained for and would charge IBM more than it agreed to pay.  In contrast to the majority’s approach, the dissent found that employer-provided benefits could not be separated from an employment contract.  In the dissent’s view, they are to be considered as one “single contract” and, as such, Waterman’s entitlements largely depend on the ordinary rule of contract damages.

The Effect of the Supreme Court of Canada’s Ruling

This leading decision of the Supreme Court of Canada is noteworthy as it affirms the view that pension benefits should not ordinarily be deducted from wrongful dismissal damages.  This ruling favours pension-eligible employees and provides some much-needed certainty to this area of law.  Nevertheless, given the strong dissent advanced by Chief Justice McLachlin and Justice Rothstein, there is still some possibility of debate in future cases on the deductibility of pension benefits from wrongful dismissal damages.  Moreover, it is unclear how a Court would rule in the face of an employment contract or pension plan that contained a clause holding that wrongful dismissal damages and pension benefits are not to be paid concurrently.


[1] 2013 SCC 70

[2] (1995), 9 B.C.L.R. (3d) 1

 

Posted by Shafik Bhalloo (posts) and Devin Lucas (posts) | Filed under Other | ...
Herb Silber
Thursday, January 2nd, 2014    Posted by Herb Silber (posts)
Herb Silber
Herb Silber brings a strong combination of experience, knowledge and empathy to the arbitration process as Arbitrator or Counsel. Herb’s approach creates the positive, respectful atmosphere critical to a successful arbitration process.

In my last article I looked at what could be done at the time the arbitration clause is negotiated to advance the efficiency and cost effectiveness of the Arbitration. How that process ends up will be a harbinger as to what can or cannot be done at the next stage, when the dispute arises.

Regardless, what is first necessary for one to do is to carefully read the Arbitration Clause and the Agreement it is found in to ensure that there are no false steps. One of the surest ways to protract the arbitration is to give fodder to the other side, should the party seeking to invoke arbitration makes a misstep. Some points to consider, therefore, to avoid this occurring are to identify if there are any limitations to be found in the agreement to permit the arbitration of the specific dispute. If there are, have “they passed” or do they need to be addressed? Has the dispute that has arisen such that it can be arbitrated? It may be for instance that the dispute is not yet “ripe.” Absent a” dispute” as contemplated by the Agreement containing the Arbitration Clause, there is nothing to arbitrate.

One consideration in British Columbia is whether to engage the BC International Domestic Commercial Arbitration Centre (BCICAC) to administer the Dispute, assuming they are not designated to do so in the Agreement under scrutiny. In the context of the objective that this article is addressing the benefit of having the BCICAC administer the Arbitration is to put time limits on the process as a starting point. As an example, Section 12 of the BCICAC Rules set out a time table for the appointment of an arbitrator after the Arbitration is deemed to have commenced (the filing of the Submission to Arbitrate with BCICAC along with the commencement fee). If the parties cannot agree on the appointment of an arbitrator within the time limits, one of the parties may request that the BCICAC appoint the arbitrator. There are similar default provisions in favour of the BCICAC if it is a three person arbitration panel to be appointed.

In my earlier articles I have written about the consideration of proceeding to mediation of a dispute before an arbitration could be sought. The challenge with that, as I have noted, is that if a provision to force the parties to choose that route is absent from the arbitration clause in the Agreement, then there is no mechanism to force the recalcitrant party to follow this path. That said, one option that might be considered to encourage the recalcitrant party to accept mediation is to hold over them the spectre of being penalized in costs. Rule 30 of the BCICAC Rules permits a party to make a Settlement Offer that the Arbitrator can consider, if it is rejected by the other side, when it comes to deciding issues of costs. I see no reason why a “settlement offer” by one party asking that the other refer the dispute to mediation before arbitration, once rejected, could not be a consideration by an arbitrator when it comes to deciding costs of the Arbitration. The BCICAC Rules gives the Arbitration Panel a wide discretion in deciding costs at the conclusion of the Arbitration.

Posted by Herb Silber (posts) | Filed under Litigation and ADR | ...
Dan Parlow
Thursday, December 12th, 2013    Posted by Dan Parlow (posts)
Dan Parlow
Dan is a partner at the firm of Kornfeld LLP. He helps resolve commercial disputes for clients including investors, brokerage houses and financial institutions in the realization of claims by creditors and over disputed investments; entrepreneurs in claims over business assets, shareholder and partnership interests and commercial property; estates, trusts and beneficiaries over disputed wills, trusts and related claims; clients of realtors, lawyers, accountants, brokers and investment advisors; and businesses in the telecom, oil & gas and high-tech industries.

The Supreme Court of Canada has opened the door more widely to consumer class actions in a case which follows an Ontario Securities Commission settlement: AIC Limited v. Fischer, 2013 SCC 69.  The decision will be equally applicable to class action certification motions in British Columbia.

One of the fundamental requirements to certification of a class action is that (to use the Ontario language) “a class proceeding would be the preferable procedure for the resolution of the common issues”:  Class Proceedings Act, 1992, S.O. 1992, c. 6, s. 5(1)(d).  The Court approached this “preferability requirement” from a consumer perspective, that is, whether the proposed class proceeding was preferable to other options (whether within or outside of the courts) from the point of view of providing access to justice.

In this case, the proposed class action relates to allegations of “market timing” against mutual fund managers who had previously entered into a settlement agreement with the Ontario Securities Commission following an OSC investigation.   That settlement specifically contemplated the prospect of civil proceedings being brought on behalf of investors.  Market timing is an investment strategy allowing some investors to profit from short-term market cycles by trading into and out of market sectors as they heat up and cool off.   The OSC, in its proceedings, had alleged that five defendant funds had engaged in such activities in disregard to the public interest and contrary to provisions in their prospectuses limiting the frequency of trading.    According to the settlement agreement, this practice breached the mutual fund manager’s requirement to exercise the powers and to discharge the duties of its office honestly and in good faith and in the best interests of the mutual fund and, in connection therewith, to exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in the circumstances. “Compliance with this duty requires that a mutual fund manager have regard to the potential for harm to a fund from an investor seeking to employ a frequent trading market timing strategy and take reasonable steps to protect a mutual fund from such harm to the extent that a reasonably prudent person would have done in the circumstances.”

The Supreme Court approached the preferability requirement by reference to what it termed the three principal goals of class actions, namely judicial economy, behaviour modification and access to justice.  In this case, the latter factor was the focus of the Court’s decision.  In a unanimous opinion, Mr. Justice Cromwell wrote at para. 26 that “[a] class action will serve the goal of access to justice if (1) there are access to justice concerns that a class action could address; and (2) these concerns remain even when alternative avenues of redress are considered…. To determine whether both of these elements are present, it may be helpful to address a series of questions” of which the court enumerated the following:

  • What Are the Barriers to Access to Justice?
  • What Is the Potential of the Class Proceedings to Address Those Barriers?
  • What Are the Alternatives to Class Proceedings?
  • To What Extent Do the Alternatives Address the Relevant Barriers?
  • How Do the Alternatively Proposed Proceedings Compare to the Class Proceedings?

Since the evidence at the certification stage will not allow for a detailed assessment of the merits or likely outcome of the class action or any alternatives to it, the court emphasized that the evidentiary burden applicable on a motion for certification is low.  This analysis has been applied both  to the preferability requirement in Ontario and to both the preferability and the commonality requirements to certification in the context of the similar British Columbia class actions regime: Pro-Sys Consultants Ltd. v. Microsoft Corporation, 2013 SCC 57.   The test requires there to be “‘some basis in fact’ before certification will be approved rather than for the court resolve conflicting facts and evidence at the certification stage”

The court further held that the limited scope of the factual inquiry on the certification motion means that the motions court will often not be able to compare the potential recoveries and/or methods of distribution in the event of success in the class action and in the alternative or alternatives which may be available.

Being somewhat unusual in that the OSC proceeding had already run its course, the underlying Divisional Court had found it a convenient opportunity to consider the preferability requirement by reference to whether “the plaintiffs have achieved full, or at the very least substantially full, recovery”.  Since a mathematical calculation had led the Divisional Court to conclude that “the plaintiffs’ current claim against AIC and CI, over and above the OSC settlement, [was] $333.8 million” (para. 4), which the court qualified as a “significant amount of money” (para. 8), it had used that analysis as a basis to conclude that maintaining a class action was preferable to other options.

However, the Supreme Court ultimately rejected that analysis as an overly narrow assessment having regard to the nature and limitations of the certification process.  Adopting the mathematical test would set the stage for future certification motions to be considered based on a detailed assessment of the merits, which the Supreme Court has repeatedly said is not appropriate for that stage.   The court held at para. 46 that “[w]ithout that [detailed] sort of examination, the most that can be done is to assess on the appropriately limited evidentiary record whether the access to justice barriers that may be addressed by a class proceeding remain even after the alternative process has run its course.”  In the end, the court held that although in assessing the comparative analysis, the representative plaintiff will necessarily have to show some basis in fact for concluding that a class action would be preferable to other litigation options, that “plaintiff cannot be expected to address every conceivable non-litigation option in order to establish that there is some basis in fact to think that a class action would be preferable.”  In such a situation, the evidentiary burden then shifts to the defendant who relies on a specific non-litigation alternative to raise it.

In assessing the access to justice question, the court considered first, the economic barrier arising from the nature of the claim – being effectively a series of small claims which individually are not large enough to support viable actions.  Access to justice requires access to a process that has the potential to provide in an economically feasible manner just compensation for the class members’ individual economic claims should they be established. The second barrier is that, as a result of the nature of the claim, “there is potentially no access to a fair process, geared towards protecting the rights of class members, to seek a resolution of the common issues for what could potentially be a class of over a million members. Thus, traditional litigation cannot achieve either the substantive or the procedural dimensions of access to justice in a case such as this.”

The court concluded that the proposed class action would address both substantive and procedural barriers, by making it economically and procedurally feasible to advance on behalf of the class a group of individual claims that would otherwise not be feasible to pursue individually.   Since the mutual fund dealers had not discharged their burden of proving the existence of a realistic alternative procedure for providing access to justice, the class action was certified.

 

Posted by Dan Parlow (posts) | Filed under Financial Transactions, Litigation and ADR | ...
Herb Silber
Thursday, December 5th, 2013    Posted by Herb Silber (posts)
Herb Silber
Herb Silber brings a strong combination of experience, knowledge and empathy to the arbitration process as Arbitrator or Counsel. Herb’s approach creates the positive, respectful atmosphere critical to a successful arbitration process.

Perhaps the most important stage of the process to try to ensure the efficiency and cost effectiveness of an arbitration occurs when an arbitration clause is negotiated. Too often one sees an arbitration clause that merely refers the matter to arbitration in accordance with Commercial Arbitration Act [in B.C. now called the Arbitration Act]. That may lead to a convoluted process of negotiation between counsel as to how to best navigate the dispute. In B.C. the Domestic Arbitration Rules, which by virtue of Section 22 of the Arbitration Act are incorporated in every arbitration governed by that Act, provides most significantly that the Rules apply, except where the parties otherwise agree. This provides a baseline, at least, for the process. I have seen arbitration clauses that specifically exclude the Domestic Arbitration Rules. My view is that would be a mistake as it gives the parties the ability to try to take strategic advantage of one another, which will undoubtedly increase the cost and protract the time required to have the Arbitration heard.

There are a number of considerations that a party should reflect upon as to the wording of the arbitration clause, besides the nature of the process, that, depending on the nature of the underlying transaction, may advance the process and thereby reduce the cost and avoid delay. In this article I will take the opportunity to mention two that, in my experience, should always be part of the calculation. They are the following:

  1. Should the parties be required to go to mediation before they can resort to arbitration?
  2. The number of arbitrators

There is value, as I have indicated in the past, to giving serious consideration to requiring the parties to first seek a mediated resolution. As then noted, there is no mechanism, apart from agreement, to force the parties to mediate, as there is in under the Mediation Regulation accompanying an Action in the Supreme Court of British Columbia. My experience has indicated that mediation in advance of resorting to arbitration may be a useful tool, particularly in matters such as rent renewals under a commercial lease, where there is generally objective evidence to resolve matters and all that may be needed is the presence of an experienced mediator to get the parties to bridge the gap.

The selection of the number of arbitrators is also a key to conducting a cost effective and expeditious arbitration. I believe that the “default position” should be a single arbitrator. By that I mean there must be a cogent reason present before a three person panel is justified. Consideration could also be given to limiting the number of arbitrators based upon the amount of the claim; as an example, if one were dealing with an arbitration clause in connection with a dispute arising out of a sale of a business or a valuation issue. In this way, claims that are genuinely valued above a certain threshold (as spelled out in the Agreement itself) could, if insisted upon by one of the parties, result in a three person arbitration panel; and those below that value would be determined by a single arbitrator.

Tags: ,

Posted by Herb Silber (posts) | Filed under Litigation and ADR | ...