Mediation and Arbitration: Forums for the future in co-ownership?
The Code of Civil Procedure (hereinafter the “C.C.P.“) came into force on January 1, 2016, after having been previously adopted in 2014, and this, in response to a series of recommendations from the legal world and the legislator’s desire to give civil procedure a facelift. Among the various changes inserted in the new Code, private dispute resolution (hereinafter “PDR“) is, without a doubt, an important addition.
These PDRs include mediation and arbitration. Both PDRs have become increasingly popular. However, it is still difficult to fully understand the difference between the two and this article is intended to introduce these two very specifics PDRs.
This article will discuss the main differences between mediation and arbitration in the context of divided co-ownership and will also discuss the role of lawyers (or notaries) in each of the above-mentioned PDRs.
MEDIATION CLAUSE AND ARBITRATION CLAUSE
First, it should be mentioned that PDRs are tools available to any party who wishes to avoid the judicialization of an existing or potential dispute. In all cases, PDRs are consensual tools, meaning that all parties must either have contractually agreed to them or have agreed to participate in them, since PDRs cannot be imposed proprio motu.
Mediation and arbitration are PDRs that can be contractually stipulated in the constituting act of a declaration of co-ownership. This obligation exists in the form of a mediation or arbitration clause (also known as an “arbitration clause”). Generally, and if this clause exists in the declaration of co-ownership, all parties to the declaration, (i.e. the syndicate of co-ownership, the co-owners and the members of the board of directors of the syndicate of co-ownership) are subject to it.
The clause may provide for certain exceptions and may only cover very specifics litigious or interpretative situations. If there are no exceptions and the clause applies to all parties and to all situations in the life of the co-ownership, it will be qualified as a perfect arbitration clause. Providing for such a mediation or arbitration clause obliges, in this case, the parties to have recourse to it before taking legal action or entirely in lieu of legal action. On the contrary, it would then be qualified as an imperfect clause.
Certain exceptions are generally provided for in the Declarations of Co-Ownership to limit the scope of the arbitration clauses. Often, it will provide that all disputes having a value of less than $15,000 may not be subject to arbitration, preserving the jurisdiction vested in the Court of Québec – Small Claims Division. However, this clause may provide that even in such a case, the parties will have to submit to prior mediation. A Declaration of Co-Ownership may also provide that the parties must first submit to mediation and then, in the event of its failure, to arbitration, and thus, to the exclusion of the Courts. Generally, these remedies are quicker than a Court remedy and can also help to prevent a situation from escalating or other incidents from occurring.
Other legal exceptions exist, notably for cases under $85,000 involving a tenant, as they fall under the exclusive jurisdiction of the Tribunal Administratif du Logement (i.e. Rental Board).
Apart from the above situations, the Syndicate of Co-Ownership could also include such clauses in its contracts with contractors. Thus, the parties could agree to avoid or delay the filing of a notice of legal hypothec of the construction if a dispute arose between the contractor and the syndicate of co-ownership.
Definitions, formalities, modalities and process
First, let us specify that mediation is a PDR which necessarily involves a third party to the dispute (i.e. the mediator), and this, contrary to negotiation which only involves the parties themselves and their lawyers.
As seen, mediation can be provided for in the Declaration of Co-Ownership, but the parties can also agree to submit to it during the judicial process, in which case, it is called a “settlement conference”, in French: la Conference de Règlement à l’Amiable (hereinafter “CRA“). A CRA is presided over by a judge appointed for the purpose by the Chief Justice.
Before a mediation begins, the mediator and the parties will generally sign a mediation agreement and a confidentiality agreement. These documents reaffirm the parties’ commitment to reaching an agreement and are often referred to as a “moral contract”.
There are no Court fees or costs associated with the CRA or Court-referred mediation. It also sometimes suspends the proceedings. On the other hand, when an action is brought before the Court of Quebec – Small Claims Division, the proceedings are never suspended. Similarly, unless the parties apply to the Court themselves, the proceedings will not be suspended.
Private mediation follows the same principles as CRA. However, it involves costs and fees, as the parties retain their own mediator. On the other hand, the mediator is often a lawyer or notary specialized in the field. He or she therefore has a very useful in-depth knowledge. This helps to manage both the legal aspects of the parties’ situation and to establish correct and legally just solutions.
In mediation, the judge or mediator’s mission is to help the parties re-establish empathetic and respectful communication, but also, and above all, to identify their needs with the objective of exploring possible solutions to reach a mutual agreement that would be reasonably acceptable.
When an agreement is reached, the judge can homologate the agreement to make it binding. Before the mediator, if a settlement is reached under the terms of the agreement, it may be homologated at the request of one of the parties.
Mediation in co-ownership
Mediation in co-ownership can deal with interpretative disputes concerning the declaration of co-ownership or a dispute involving, for example:
- Co-owners among themselves;
- A co-owner and a member of the Board of Directors
- Directors of the board between themselves;
- The syndicate of co-ownership and a co-owner or;
- The syndicate of co-ownership and one of the directors.
The case of submitting a dispute between a syndicate of co-ownership and a tenant raises a question mark, as it implies that the tenant would first have to comply with the requirements of the mediation clause, whereas there is a mandatory jurisdiction conferred on the Tribunal Administratif du Logement (i.e. Rental Board).
As an example, we can cite the non-performance of an obligation or the non-compliance of the declaration of co-ownership by the tenant. At the same time, a case involving only the co-owner and his tenant falls under the jurisdiction of the Rental Board, as soon as it concerns the rented dwelling. If the formulation of a prior and mandatory mediation clause relating to a dispute between a syndicate, a co-owner-landlord and a tenant is reasonable, and therefore not abusive, we are of the opinion that it should be applied, because, contrary to arbitration, mediation is not considered to be a quasi-judicial process.
Role of the mediator
The mediator cannot impose a solution or favour one party over another. The process is confidential. A Court could not compel a party or the mediator to disclose matters that have been disclosed or discussed in mediation. The parties themselves are also bound by the confidentiality of the elements that they did not introduce, but they could produce, if the dispute goes to Court, those elements that they themselves have communicated during the mediation.
Although the mission is to bring the parties to an agreement, the mediator may, on his or her own initiative, terminate the mediation. He may do so, among other things, when the mediation is clearly doomed to failure or when the parties request it.
If a settlement is reached under the terms of the agreement between the parties, whether it prevents a dispute from arising, resolve a dispute or settles difficulties related to the enforcement of a judgment between the parties, the mediator ensures that it reflects the will of the parties. In some cases, he or she may draft the agreement. Between the parties, this settlement will have the authority of res judicata. A party may seek homologation of the settlement to make it binding and enforceable.
The lawyer or notary in co-ownership
The practitioner can play several roles in a mediation. He or she may: 1) be the mediator himself or herself, 2) be an advisor to one of the parties (client) or 3) be excluded entirely by the parties if they so desire.
1) The mediating practitioner
The lawyer or notary, when appointed as a mediator, acts as an intermediary between the parties. He is a third party to the case. He must be impartial.
He is often accredited by a professional association (Chambre des notaires and Barreau du Québec) or a recognized association such as the Institut de médiation et d’arbitrage du Québec or by a private service such as Médiation et arbitrage en copropriété Inc.
Usually, he works with the parties in five stages. First, he establishes communication channels between the parties in order to promote dialogue between them. In the second step, he identifies the common needs and interests. In the third step, he analyzes with the parties the options presented according to their needs. In a fourth step, he accompanies the parties in the choice of a feasible option for them. Finally, he or she formalizes the agreement, if applicable.
2) The practitioner advisor: the lawyer or notary
In mediation, the parties are the stars and not the lawyer or notary appointed for this purpose.
The practitioner advisor will assist and advise the party who has mandated him/her. He will have a limited, supportive role, as lawyers or notaries in mediation are not there to plead. It is the parties themselves who discuss and govern the narrative. Obviously, the practitioner, during a mediation, can advise his client on the legal aspects of the legal situation in which the parties find themselves. The practitioner will participate in the drafting of the agreement and assist the mediator as required.
The parties must also keep in mind that this process is not intended to allow for pleading, to plead one’s case or one’s point of view-in-law. The parties and their advisors must have an open mind. It is therefore inadvisable to come in with a predefined plan as to what demands or concessions, they would be willing to make.
3) Excluding practitioners from the process
In some situations, the mediator may suggest that the parties exclude their advisors from the discussions to encourage a more informal and open exchange between them. However, the mediator cannot force the parties to exclude them. This proposal may remove barriers to dialogue and may foster a more informal atmosphere conducive to the settlement.
Indeed, legal advisors are not perfect and can, at times, be a source of discord among themselves.
Definitions, formalities, terms and process
The use of arbitration, as an alternative to litigation, has several advantages, including the much shorter period it takes to obtain a decision (arbitral award).
In addition, the arbitrator has the competence to deal, if provided for or if the parties so request, with questions concerning the legality of a decision or its appropriateness or even questions concerning non-legal aspects, unlike a Court (except for legality).
The arbitrator will be responsible for deciding the dispute in accordance with the precepts and procedure set forth in the written arbitration agreement, which is completed or submitted, as the case may be, to the C.C.P.
The arbitration costs are, unless otherwise provided for in the Declaration of Co-Ownership or decision of the arbitrator, borne equally by the parties.
The arbitration process shall commence as soon as a notice is sent by one of the parties to the other, specifying the subject matter of the dispute.
Appointment of the arbitrator
Under the old Code of Civil Procedure, the standard was to appoint three arbitrators to hear a case. Nowadays, under the new C.C.P., the rule is to appoint a single arbitrator and, if the case and its circumstances warrant it, the exception is to appoint three arbitrators. Parties who are subject to a Declaration of Co-ownership that predates the adoption of the new C.C.P. and provides for the appointment of three arbitrators may, by mutual agreement, reduce the number of arbitrators to one.
The arbitration clause included in a Declaration of Co-Ownership may provide for aspects relating to the payment of the arbitrator’s fees or the time allowed for the arbitrator to render a decision. The arbitration clause will generally provide for the method of appointment and the qualifications for appointment, often that of being experienced in the field of condominium law.
Where difficulties arise in the selection of an arbitrator, the Court may intervene to appoint one. It appears that this power of appointment is not exclusively vested in the Superior Court.
Although the appointment of an arbitrator, is an injunctive proceeding and should normally fall within the exclusive jurisdiction of the Superior Court, the Court of Quebec would now have jurisdiction over all “arbitration-related claims” falling within its jurisdiction. In this regard, article 625 of the C.C.P. does not seem to distinguish between the Court of Quebec and the Superior Court when it mentions that the “Court” may appoint an arbitrator for the parties.
Arbitral award and provisional measures
The arbitral award, i.e. the decision rendered at the end of the arbitration process, is final and binding on the parties (enforceable).
Case law has clarified the scope of the “injunctive” power of arbitrators in the context of divided co-ownership. The Quebec Courts have held that arbitrators have all the powers necessary to order the performance in kind of obligations which would be included in a declaration of co-ownership. The Courts note that a distinction must be made between the power to order specific performance, which may be vested in the arbitrators and the Superior Court, and the power of pure injunction, which is vested exclusively in the Superior Court.
The arbitrator’s decisions may be interlocutory (interim, provisional or safeguard), i.e. they decide certain issues raised during the arbitration which may or may not be of an urgent or precedential nature. The Superior Court nevertheless has inherent jurisdiction over any application for a pure injunction whether or not there is a perfect arbitration clause.
Moreover, a party could still apply to the Superior Court in a case where an arbitrator has not yet been appointed and there is an urgent need for an interim injunction or where the arbitrator is not competent to rule on the injunction. An example would be to order a party to do or not to do something that is not provided for or is outside the scope of the contractual obligations provided for in the Declaration of Co-Ownership.
Finally, although the arbitral award is not subject to appeal, it is subject to the control and supervision of the Superior Court.
Role of the lawyer or notary
As in a mediation, the practitioner may play different roles.
1) The Practitioner as Arbitrator
The practitioner may be appointed as an arbitrator. The arbitrator may be accredited by his or her professional association or designated by the Court or accredited by a recognized association such as the Institut de médiation et d’arbitrage du Québec or Médiation et Arbitrage en Copropriété Inc. in the same manner as a mediator.
The arbitrator must act impartially and diligently throughout the process and ensure that the established procedure and the guiding principles of civil procedure are respected, in certain proportionalities and contradictions.
The arbitrator, unlike the mediator, has an active role. He or she acts as a decision-maker in the same way as a judge in a Court of law. He shares, unlike a mediator, a quasi-judicial process. The arbitrator makes decisions that are binding on the parties.
As such, the arbitrator is immune from suit for his or her acts and omissions during his or her duties. Consequently, a party to the arbitration cannot challenge the fees of a lawyer acting as arbitrator before the Conciliation Service of the Quebec Bar.
2) The practitioner advisor: the lawyer
During an arbitration, the lawyer plays the same role of advisor and representative as he would before a Court. He protects the interests of the party he represents by preparing the file, the procedures, the exhibits, the evidences and, before the arbitrator, by pleading his client’s case, raising the appropriate objections, questioning witnesses and pleading the relevant case law in support of his client’s case.
3) Self-Represented Arbitration
Parties may decide, as in a judicial process, not to be represented by a lawyer in an arbitration. It is nevertheless recommended that advice be obtained before and during the process, especially since the arbitration award is final and without appeal, and therefore enforceable.
In addition, there are certain exceptions. The law requires that legal entities, such as a syndicate of co-owners, must be represented by a lawyer in contentious and even non-contentious proceedings.
Under the mediation process, the parties are led to become aware of the needs of the other party and those they have in common and to reach a mutual agreement.
Arbitration, on the other hand, can allow the parties to reduce the costs incurred in an existing or potential dispute and, moreover, to reduce the duration and sometimes even the scope of the dispute by preventing the emergence of other problems that may arise while waiting for a settlement. It should also be noted that arbitration or mediation can generate much less stress than a case brought before a Court.
In short, since the reform of the C.C.P., the legislator has placed a great deal of emphasis on PDRs and the obligation to consider them before undertaking any legal recourse.
In the legal world, it is known that the worst of the regulations is better than the best of the judgments. It is also interesting to know that mediation has a high success rate which is estimated, for judicial mediation (CRA), at more than 85%, and this, in addition to saving several days of trial.
Syndicates of co-ownership or co-owners whose declarations of co-ownership do not contain a mediation and arbitration clause may request the inclusion of such a clause in the future.
The Courts in Quebec are known to be clogged and these methods of settlement represent a nice alternative for co-owners and boards of directors of syndicates of co-ownership to the Courts. In this sense, Declarations of Co-Ownership contain more and more of these types of clauses and it is important for co-owners and directors to understand the differences between these two methods of settlement.
We invite you to consult your favourite lawyer or notary to find out more about these PDRs and how to amend your Declaration of Co-ownership to include them.