Drafting arbitration clauses: a cautionary tale

December 1, 2009
Arbitration and other forms of alternative dispute resolution can provide greater procedural flexibility with lower costs and less delay than traditional litigation. As a result, arbitration clauses are an increasingly common feature of agreements in the energy sector. A recent case from the Ontario Court of Appeal serves as a reminder to take care when drafting arbitration clauses.

The Plan Group v. Bell Canada involved the interpretation of an arbitration clause in a 1999 contract between the Plan Group and Bell Canada relating to the delivery of electrical and cabling services. In 2005, Plan delivered a notice demanding arbitration of a dispute under the contract. Bell brought an application seeking the court's interpretation of the arbitration agreement and whether certain procedural requirements had to be met in order to commence the arbitration.

The arbitration agreement provided that the arbitration would be conducted under the then-current rules of the Arbitration and Mediation Institute of Ontario Inc. Bell argued that because Plan failed to file its notice of arbitration with the Institute, as required under the Institute rules, the arbitration had not properly been commenced. This issue was of particular significance because the arbitration agreement also provided an irrevocable waiver of disputes under the contract absent filing of a notice of arbitration within 12 months. By the time the application was heard, this limitation period had expired for the dispute in issue. If the court found that Plan's notice of arbitration was insufficient, then Plan would be barred from submitting the dispute to arbitration or to the court. These issues were further complicated by changes to the Institute rules that were applicable even though they were made after the contract was entered into because the arbitration agreement mandated use of the "then-current" rules.

The application judge held that the arbitration agreement mandated that the arbitration be conducted under the Institute rules, but did not require commencement in accordance with the rules. However, the Court of Appeal disagreed and held instead that commencement of the arbitration was indeed governed by the Institute rules and therefore the notice of arbitration should have been filed with the Institute in order to properly commence the arbitration. Since Plan had not filed the notice with the Institute, no arbitration had been commenced and the irrevocable waiver now prevents Plan from commencing an arbitration.

Arbitration can be a convenient and cost effective manner of dealing with disputes, but as this case highlights, it is prudent to pay attention to the drafting of your arbitration clause and take care when selecting the rules applicable to future disputes.

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