B.C. – Med-arb process was “fundamentally flawed” – #775

In Shaikh v Brar, 2023 BCSC 1285, the applicants (“Tenants”) complained about an unfair mediation-arbitration process and applied for judicial review and an order setting aside a decision of an arbitrator from the B.C. Residential Tenancies Branch (“RTB”). This case note focusses on the med-arb issues it raises, not the relevant statutory regime, the nature of the Arbitrator’s discretion under it, or the standard of review. The Court found that the med-arb process was “fundamentally flawed” and set aside the award because the RTB Arbitrator: (1) used decision-making powers in the mediation stage that should have been reserved for the arbitration stage; and (2) went beyond the scope of appropriate exhortation to settle in the med-arb context. 

The arbitration that became a med-arb– The Landlords and Tenants raised numerous complaints about each other. One of the issues was whether the Landlords could enforce a notice to end the tenancy and require the Tenants to vacate the premises in one month. The Tenants disputed this notice and also made claims for loss of income as a result of the stress of dealing with the tenancy dispute, damages for loss of enjoyment of the property, and other related damages. 

These issues were before the RTB Arbitrator during a recorded 30-minute virtual hearing held on February 3, 2023. This is important because the Court commented upon the minimal amount of time allocated for these kinds of hearings, which contributed to the unfairness in this one. The parties do not appear to have been represented by counsel.

At about the 11-minute mark, the parties agreed to participate in a mediation.

The RTB Arbitrator then explained that the Arbitrator could either act as mediator or leave the virtual conference room to all the parties to negotiate directly. The transcript showed that Arbitrator then described the Arbitrator’s role if remaining in the conference room as follows:

“… I’m not here as a lawyer, agent or advocate. I’m only here to observe and ensure that a settlement is enforceable, and issue any order to enforce and take notes regarding what the settlement terms are.

If I’m present during any discussions, any discussions in front of me are off the record, they’re without prejudice and can’t be used against you. If you don’t settle, I will make a decision. If you do settle then I’ll record the settlement in writing and if you don’t then we will have a hearing and I’ll make a decision. If I make a decision the tenants face the risk of moving out in two days. An order of possession will be granted giving them two days to move out, if I uphold the notice to end tenancy. If I cancel the notice, the tenancy will continue and the landlord will not get an order of possession. Those are the risks for both parties if you want me to make a decision. [Emphasis added.]”

At about the 14-minute mark the parties said they understood and agreed to the process. The Court commented that this was sufficient to create a med-arb process. 

The parties began to negotiate and reached agreement on a move-out date, and then turned to discuss the Tenants’ claims. The parties were unable to settle those claims. The Arbitrator then advised (erroneously) for the first time that the hearing date was scheduled to deal only with the notice issue and that the Tenants’ claims would have to be severed and dealt with in another hearing. The Tenants agreed to move out, but said that they needed some compensation to pay the deposit for a new place. At the 27-minute mark, the Tenants agreed to the move-out date, but the Tenants’ issues were not addressed. The rest of the hearing took 4 minutes and the RBT Arbitrator issued a decision.

It set out the Arbitrator’s jurisdiction to sever the issues in the hearing, to assist the parties to settle their dispute, and to record that settlement in the form of a decision or order, which the Arbitrator described as a “final and binding resolution” of the issues, except for the Tenants’ monetary claims. The Arbitrator granted the order of possession. 

The Tenants’ challenge of the award – The Court described the basis for the Tenants’ challenge. They alleged that the med-arb was conducted in an unfair manner, particularly when: (1) the Arbitrator advised them partway through the hearing that their claims would be severed and dismissed without a hearing (with leave to reapply): (2) they were not able to achieve a settlement of the overall dispute; and (3) the Arbitrator then pressured them to move ahead with a partial settlement dealing only with the claims of the Landlords. They argued that the Arbitrator did not just facilitate settlement discussions, but gave the appearance of bias and “tainted” the negotiations:

“[56]…In particular, they submit that while the use of exhortation as a strategy in mediation may be appropriate, the use of exhortation can give rise to unfairness in a med-arb context where a party may come to think (perhaps not unreasonably) that the mediator has already made up their mind about how an issue will be decided when the proceeding switches to arbitration: McClintock v. Karam, 2015 ONSC 1024 at paras. 69-70.”

The Court agreed:

“[90]      In my view, the decision of the Arbitrator to sever and dismiss the Tenants’ claims was reached in a manner that was not procedurally fair. The Arbitrator clearly came to firm views as to the question of severance and dismissal either prior to, or at a very early stage of the hearing, and simply refused to allow the parties to be heard on that question. This was a fundamental violation of procedural fairness”.

“[99]      At the root of the issues in this case was the Arbitrator’s assumption, going into the mediation phase, that the issues were unrelated and the claims could be easily separated for negotiation purposes. This assumption was not communicated to the Tenants until the stark difference between their position and the Landlords’ position on compensation became apparent. The Tenants clearly understood they were there to negotiate with respect to the claims as a whole, and while they were willing to start with discussion of a move-out date, they had no expectation that, in essence, the rug would be pulled out from under them by the Arbitrator’s decision, mid-mediation, to exercise their decision-making powers in order to sever and dismiss the Tenants’ claims.”

And further:

“[110]   Prior to the start of the mediation phase, the Arbitrator had advised the parties the Arbitrator would be “only here to observe”, that any mediation discussions would be “off the record”, and that it was only if the parties did not settle that the Arbitrator would make a decision. However, the decision to sever came during the midst of the mediation phase, after the Tenants had advised they did not want to proceed with only a partial settlement and wanted to move to the arbitration phase. The decision to sever was made for purposes of, and was used by the Arbitrator as, leverage in pressing the parties to commit to a partial settlement notwithstanding their expressed reluctance to do so”

The Court concluded that the med-arb process was fundamentally flawed because: (1) the Arbitrator used decision-making powers in the mediation stage that should have been reserved for the arbitration stage; and (2) went beyond the scope of appropriate exhortation in the med-arb context.

The Court set aside the Arbitrator’s decision.

Editor’s Notes:

First, some of the flaws in the med-arb process in this case flowed from the difficulties inherent in a one-hour hearing appointment. But the decision highlights some of the challenges with med-arbs that perhaps make parties to commercial arbitration – and arbitrators – reluctant to participate in med-arbs. Those challenges include:

  • How the mediator/arbitrator balances the role of ultimate decision-maker with that of facilitator who refrains from expressing a concluded view;
  • What strategic choices the parties make about what information they will share during the mediation to promote settlement, knowing that the mediator cannot “unlearn” that information if the matter proceeds to arbitration;
  • Inherent limitations in a dual process, each component of which has a different objective, such as the constraints upon a mediator who may later become an arbitrator to engage in private, confidential discussions with a party alone; and
  • The mediator/arbitrator has a duty to be independent and impartial at all stages of the proceeding and a med-arb process invariably increases the risk that the mediator/arbitrator will feel duty bound to resign after the parties have invested time and money in a dispute resolution process that may have to start afresh.

All (or most?) of these challenges can be overcome by a good written med-arb agreement, in which everyone understands the process and the rules at the outset. In this case, the parties signed no agreement so the process was not clear, and according to the Court, changed over time without the consent of the parties. There are sample med-arbitration clauses which can be used when the parties discuss process, although in my view a simple clause is rarely sufficient. A good alternative is for the parties to prescribe the use of the ADRIC Med-Arb Rules in their arbitration clause. The most significant provisions are:

  • the mediator must remain impartial, but the parties may agree that the mediator/arbitrator need not be independent;
  • the parties agree that no procedural unfairness or loss of jurisdiction arises solely because the mediator/arbitrator: (a) acts as mediator in the mediation phase for any issues referred to arbitration; (b) meets separately with a party during the mediation phase; or (c) questions the merits of a party’s position during the mediation phase;
  • the Rules make clear when the mediation phase of the proceeding ends and the arbitration phase begins;
  • when the mediation phase ends, the parties must particularize which issues have been resolved and will be included in a consent award and which will be dealt with in the arbitration phase;
  • any challenge to the mediator/arbitrator from the mediation phase must be raised and decided before the arbitration phase; and
  • during the arbitration phase, the mediator/arbitrator must not use information from the mediation phase unless it becomes evidence in the arbitration or the parties consent to its use.

Second, one of the benefits of arbitration is its flexibility, which means that parties can choose an arb-med process or an arb-med-arb process, or something else. But the process must be clearly set out and understood by the parties or it invites a challenge by a dissatisfied party. A useful resource for more information about these various combinations of “hybrid” processes is the Chartered Institute of Arbitrators’ Professional Practice Guideline on the Use of Mediation in Arbitration. Third, the extent to which these various processes are available and the resulting awards enforceable may vary from jurisdiction to jurisdiction. The law of both the seat and the place of potential award enforcement are important. For example, section 35 of the Ontario Arbitration Act, 1991, SO 191, c. 17, provides that the arbitrator shall not conduct any part of the arbitration as a mediation, ”or other similar process that might compromise or appear to compromise arbitral tribunal’s ability to decide the dispute impartially”. However, s. 3 allows the parties to contract out of this provision. The arbitrator continues to have the duty to be – and perceived to be – independent and impartial, whether in a mediator or arbitrator role and must withdraw if that is no longer possible. This is a very difficult line to walk in practice. And it is complicated by the fact that parties may not always plan for a med-arb process before the dispute arises. For example, they may choose med-arb after an unsuccessful mediation, in which they ask mediator to serve as arbitrator. Alternatively, in the midst of an arbitration, they may ask the arbitrator to mediate. No matter at what stage the parties embark upon the process, a clear agreement is essential.