Deals Making And Breaking Them (May 2011)

McCarthy Tétrault Advance™
Building Capabilities for Growth

DEALS: MAKING & BREAKING THEM

18 May 2011

McCarthy Tétrault LLP / mccarthy.ca / 18 May 2011

2

WHEN DO YOU HAVE A DEAL AND
HOW SHOULD IT BE DOCUMENTED?
LOIs and Definitive Agreements

David Crane


3
What is the purpose of a Letter of Intent
(LOI)?
¬ Common precursor to a business transaction
¬ Outlines the intent of the parties to engage in some form of
business relationship and anticipates, either expressly or
impliedly, continued negotiations to reach a definitive
agreement
¬ Expression of common intent to enter into negotiations in view to
conclude a business transaction
¬ Also called a memorandum of understanding or term sheet
¬ Avoid wasting time and money required to try to negotiate a full
deal (i.e. definitive contract) only to have the deal fall apart
because of a lack of agreement with respect to a fundamental
term (e.g. price)
¬ Builds deal confidence - allows for efficient evaluation of the
likelihood of success or failure of a transaction


4
When should LOIs be used?

¬ When it isn’t clear that a deal will be made
¬ Allows parties to work out the essential terms of the deal in a more
informal process without incurring the time and expense of trying
to negotiate a complete definitive agreement
¬ To record and track the main deal terms so that they can be
communicated to others (e.g. the lawyers drafting the definitive
agreement(s))
¬ Even if non-binding, can provide moral suasion
¬ Consider impact to negotiating leverage
¬ When the timing allows for an LOI as an initial step
¬ Costs of two rounds of negotiation are worthwhile
¬ If a public company, consider disclosure requirements


5
Binding or non-binding?

¬ An LOI can be binding or non-binding, in whole or in part
¬ Problems arise when parties fail to specify in their LOI
whether they intend it or some parts of it to be legally
enforceable
¬ Typically, LOIs are not intended to bind either party to
finally complete the contemplated transaction but are
meant to include some binding terms
¬ Binding parts/provisions typically address:
¬ Exclusive dealing / no shop clauses
¬ Break or topping fees
¬ Access for due diligence
¬ Confidentiality
¬ Allocation of transaction costs
¬ Conduct of business prior to close
¬ Termination of the LOI

6
Has a binding commitment/contract
been formed?
¬ Common law requirements of contract formation:
¬ Offer
¬ Acceptance
¬ Consideration
¬ KEY FACTOR: Intent of the parties to create legal relations
¬ Intent of the parties as determined objectively based on the
words used
¬ Meeting of the minds and reasonable degree of certainty of
terms
¬ Not easy to determine whether intent is sufficient clear
¬ Extrinsic evidence (e.g. conduct, conversations, emails
etc.) can be considered if:
¬ Intent is unclear
¬ Rectification is sought


Other factors for determining binding/ 7

non-binding
¬ Presence of essential open terms
¬ Definiteness and completeness of language
¬ Express LOI term or expiration date
¬ Reference to need for further negotiation or agreements
¬ Industry custom, complexity of the transaction and prior
course of conduct
¬ Use of condition precedent
¬ Performance, promissory estoppel or detrimental reliance
¬ Bad faith on the part of a party


8
Precontractual negotiations
¬ As a general rule, a party to precontractual negotiations
has traditionally been able to break off negotiations for
any reason without liability
¬ Unenforceable agreement to agree
¬ Only costs are the loss of the party’s own investment
in negotiations in terms of time, effort and expense
¬ However, there have been some recent cases
involving the duty of good faith that have conflicted
with this rule


9
Duty of good faith – What is it?
¬ What is good faith?
¬ Little judicial consistency in its definition
¬ Something more than pure selfish behaviour
¬ “Candour, honesty and forthrightness”
¬ Less than a fiduciary duty (can act in own best interests)
¬ Absence of bad faith
¬ What is its purpose?
¬ Common concern for fair dealings and protection of
parties’ reasonable expectations
¬ What would it mean in the context of negotiations?
¬ Sincere efforts to negotiate
¬ Not a sham process


10
Duty of good faith – Status in law
¬ Law in respect of the duty of good faith is unclear
¬ Pre-contractual obligation of good faith
¬ The common law rule is that contracts to negotiate are inherently
uncertain and therefore incapable of creating binding and
enforceable obligations
¬ Too difficult to estimate the damages
¬ Inherently repugnant to the adversarial position of the parties when
involved in negotiations
¬ Each party to the negotiations is entitled to pursue his (or her) own
interest, so long as he avoids making misrepresentations
¬ May not matter whether obligation is express or implied
¬ Confirmed by most case law in Canada, but some exceptions in
context of an existing contractual relationship
¬ Exception in Quebec – principle is codified in Civil Code of
Quebec
¬ Be aware of unconscionability, deceit, misrepresentations,
fiduciary duties, public policy etc.

11
Duty of good faith – Status in law (con’t)
¬ Contractual duty of good faith
¬ Not clear whether implied duty of good faith arises in respect of
every contract or in certain circumstances only (e.g. with respect
to certain contractual provisions or in certain fact situations)
¬ One line of authority that suggests that there is a general duty of
good faith performance arising in respect of all contracts
¬ However, strongest line of authority suggests that the duty only
arises in the presence of particular relationships or particular
conduct on the part of a contracting party
¬ Circumstances where duty of good faith performance has been
recognized by the courts:
¬ exercise of discretionary power; complying with a condition
precedent; invoking a rescission clause; complying with a right of
first refusal; performance of franchise agreements
¬ More likely to arise in a relationship involving dependency,
influence, vulnerability, trust and/or confidence
¬ Implied so as to prevent parties from defeating the objectives of
the very agreements they have entered into
¬ But not to create new, unbargained-for rights and obligations or to
alter express terms of a contract

12
Implications of duty of good faith
¬ Conclusion:
¬ Likely not applicable to pre-contractual negotiations
¬ However, remember that other legal doctrines, such as undue
influence, unconscionability, negligent misrepresentation and deceit,
may provide a cause of action
¬ Once in a contractual relationship, may be implied (but likely only
in special circumstances)
¬ Even if an entire agreement clause is present
¬ If implied into a contract, may:
¬ Create obligation to cooperate in achieving the objectives of the
agreement
¬ May lead to other covenants being implied (e.g. precluding
conduct not strictly prohibited by the express terms of the
agreement)
¬ Restrain the exercise of discretion


LOI practice tips 13

¬ Consider whether an LOI, with its attendant uncertainties, is
appropriate in the circumstances
¬ Risk of implied obligation to act in good faith
¬ Carefully consider what terms should be addressed at the LOI stage
¬ Explicitly address what is intended to be binding/non-binding
¬ If not intending to be bound, avoid words such as “offers”, “accepts”,
“shall”, “must”, “promise”, “agreement”, “contract” and “undertaking”
¬ Include “sunset” provisions – time to definitive agreements; time to
fulfill or waive conditions precedent; time for disclosure
¬ Include termination provisions – explicitly describe how and when the
LOI can be terminated
¬ Be aware of the risks of entire agreement clauses - consider
amending LOIs to document changes to deal that are only reflected in
the final agreement
¬ If you are in a special relationship, take extra care in negotiations


14
Definitive agreements
¬ The detailed and complete deal terms should be reflected
in an agreement in a form appropriate for the type of deal
¬ Include an entire agreement clause
¬ Override all preliminary agreements, understandings and
representations, whether oral or written, so that the definitive
agreement reflects the entire deal
¬ As previously discussed, be aware of potential problems with
respect to entire agreement clauses
¬ Consider exit strategies upfront
¬ When should you be able to terminate the agreement?
¬ Termination for cause
¬ Termination for convenience
¬ Reductions in scope and volume
¬ For service relationships, consider whether termination/transition
assistance is needed


15

NON-DISCLOSURE/
CONFIDENTIALITY AGREEMENTS
AND DUTIES OF CONFIDENTIALITY

Michael Feder


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Duties of Confidentiality

¬ The exchange of confidential information is an
essential part of deal-making.
¬ Duties of confidentiality ensure that disclosed
information is not misused.
¬ Duties of confidentiality can arise at common law
or under a non-disclosure/confidentiality
agreement (“CA”).


17
Common Law

¬ At common law, a duty of confidentiality exists
where (1) information with a “confidential
character” is (2) imparted “in confidence”.


18
Common Law

¬ Whether information has a “confidential
character” depends on a number of factors:
¬ Cost
¬ Value
¬ Secrecy
¬ “Imparted in confidence” means a reasonable
person would conclude that the information was
given only for a limited purpose.
¬ Where a duty of confidentiality exists, the
recipient must use the information only for the
limited purpose for which it was conferred.


19
Negotiating Confidentiality Agreements

¬ If carefully drafted, CAs can provide the parties
with certainty concerning duties of
confidentiality.
¬ Particular attention must, however, be paid to:
1. the scope of information defined as confidential;
2. the entire agreement clause;
3. the permitted use of confidential information; and
4. standstill or area of interest clauses.


20
Defining Confidential Information

¬ The disclosing party will seek a broad definition,
while the receiving party will seek a narrow one.
¬ Beware of uncertain definitions that include oral
communications or that capture all information
that “relates to” or “concerns” something.


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Ousting the Common Law: Entire
Agreement Clauses
¬ A carefully drafted entire agreement clause can prevent a
common law duty from applying to information not
covered by the CA.
¬ The entire agreement clause must “expressly or by
necessary implication” deal with confidentiality.
¬ Cadbury Schweppes Inc. v. FBI Foods Ltd., [1999] 1 S.C.R.
142, at para. 36.
¬ The entire agreement clause must not restrict itself to the
subject matter of the CA.
¬ Minera Aquiline Argentina SA v. IMA Exploration Inc., 2006
BCSC 1102, at para. 113.


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Restrictions: Permitted Uses Of
Confidential Information
¬ The disclosing party will seek a narrow permitted
use clause, while the receiving party will seek a
broad one.
¬ The receiving party bears the onus of proving
that it was expressly permitted to use confidential
information as it did.
¬ Novawest Resources Inc. v. Anglo American Exploration
(Canada) Ltd., 2006 BCSC 769, at para. 63.


23
Restrictions: Permitted Uses Of
Confidential Information
¬ Permitted use clauses must be drafted precisely.
¬ A CA permitting the confidential information to be used
for the purpose of “assessing … some form of
business combination between the Parties” precluded
a hostile takeover bid by the receiving party. Although
a hostile takeover bid is a “business combination”, it is
not “between the Parties”.
¬ Certicom Corp. v. Research in Motion Ltd. (2009), 94 O.R.
(3d) 511 (Ont. Sup. Ct.), at paras. 41 and 53.


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Restrictions: Standstill Clauses

¬ CAs often contain standstill clauses prohibiting
the recipients from acquiring shares of the
disclosing party. The purpose is to provide a
“cone of safety” for negotiations.
¬ Aurizon Mines Ltd. v. Northgate Minerals Corp.,
2006 BCSC 1022, at para. 54.


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Restrictions: Standstill Clauses

¬ Absent an express indication to the contrary, standstill
clauses are independent: the standstill clause will be
enforceable notwithstanding that no confidential
information has been used or even exchanged.
¬ Aurizon Mines Ltd. v. Northgate Minerals Corp., 2006 BCCA
340, at para. 49.
¬ In this way, a standstill clause provides “better protection”
for the disclosing party than confidentiality provisions: it
removes the need to prove that confidential information
was relied on.
¬ Certicom Corp. v. Research in Motion Ltd. (2009), 94 O.R.
(3d) 511 (Ont. Sup. Ct.), at para 56.


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Restrictions: Area Of Interest Clauses

¬ An area of interest clause prohibits the recipient
from staking within a defined geographical area.
¬ Like a standstill clause, an area of interest clause
typically does not require proof that the receiving
party relied on confidential information.
¬ Minera Aquiline Argentina SA v. IMA Exploration
Inc., 2006 BCSC 1102, at paras. 95-97.


27
Restrictions: Area Of Interest Clauses

¬ A badly drafted area of interest clause can
negate all other restrictions on the use of
confidential information:
“[N]othing contained herein will restrict or prevent
[the receiving party] from acquiring any property
through option, joint venture or staking of new
mineral claims, except within a one kilometre area
of influence from the current property boundary”
¬ Novawest Resources Inc. v. Anglo American Exploration
(Canada) Ltd., 2006 BCSC 769.


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Confidentiality Agreement Paralysis


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Ethical Walls: A Solution?

¬ An ethical wall attempts to foreclose any
suggestion that confidential information has been
used by a receiving party in breach of a CA.
¬ Since duties of confidentiality may be breached if
confidential information is relied on even
inadvertently, merely instituting an ethical wall is
insufficient. The receiving party must be able to
prove that the ethical wall was effective.


30
An Effective Ethical Wall: Dataco
¬ Olameter entered into a CA with Dataco then received
information in connection with a possible purchase of Dataco’s
business.
¬ Olameter became interested in bidding on a contract for which
Dataco was competing.
¬ Olameter then instituted an ethical wall with the following
features:
¬ The confidential information received from Dataco was kept
in a locked cabinet, to which only one Olameter employee
had access.
¬ The confidential information and the bid were handled by
Olameter offices in two different cities.
¬ “Ethical wall procedures” were circulated to Olameter
employees.
¬ Dataco Utility Services Ltd. v. Olameter Inc., 2009
ABQB 116 .

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Other Practical Tips

¬ Consider implementing an ethical wall whenever
a CA is made.
¬ Beware of unsolicited proposals or information.
¬ Avoid boilerplate.


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PUBLIC COMPANY
CONSIDERATIONS
Robin Mahood


33
Public Companies – Disclosure
Obligations
¬ Basic Requirement
¬ If a “material change” occurs in the affairs of a reporting
issuer, the reporting issuer must (a) immediately issue and
file a news release describing the change and (b) within 10
days, issue a material change report

¬ A “material change” is:
¬ a change in the business, operations or capital of the
reporting issuer that would reasonably be expected to have
a significant effect on the market price
¬ a decision to implement a change referred to above made
by the board of directors or senior management who
believe that confirmation by the board of directors is
probable


Disclosure Obligations – AiT Advanced 34

Technologies
¬ OSC Decision (2008)
¬ provides guidance with respect to the appropriate timing of
disclosure

¬ Chronology of Events
Feb 27 CEO of AiT discusses transaction with 3M management
Mar 12 Non-disclosure agreement
Mar/Apr Due diligence
Apr 25 Non-binding letter of intent
AiT board approval (subject to fairness opinion and definitive
documents)
May 9 Market Regulation Services contacts AiT
AiT announces that it is exploring “strategic alternatives” to
enhance shareholder value but has no further announcements
to make at that time
May 14 3M board approval (subject to completion of due diligence)
May 22 Execution of merger agreement and public announcement


AiT Advanced Technologies – OSC Decision 35

¬ Decision
¬ No material change occurred until definitive documents had been
signed (consistent with general practice)
¬ Key Findings
¬ a material change can occur in advance of the execution of definitive
documents
¬ no “bright line” test
¬ determination of whether a material change has occurred will depend on
the facts and circumstances of each case
¬ discussions and negotiations may constitute a “material fact” even if
they do not constitute a material change that requires disclosure
¬ trading prohibited
¬ disclosure of negotiations to a third party prohibited (tipping)
¬ board approval may not constitute a material change
¬ in the context of arm’s length negotiations, board approval will generally
not be considered a material change unless there is a sufficient
commitment from the counterparty and a substantial likelihood that the
transaction will be completed


AiT Advanced Technologies – Practice Points 36

¬ Negotiations do not need to be disclosed until the parties are committed
to proceed and there is a substantial likelihood of completion – generally
speaking, a non-binding letter of intent will not need to be disclosed

¬ Ensure that board minutes accurately reflect the company’s level of
commitment to a transaction (i.e. if approval is subject to due diligence or
resolution of key business points, make sure this is reflected in
resolutions or minutes)

¬ In determining whether to disclose an agreement at any point in
negotiations consider:
¬ whether all material terms have been agreed
¬ whether each party to the agreement has obtained required approvals
¬ whether key conditions (i.e. due diligence) have been satisfied
¬ Insider Trading
¬ ensure that directors and office are aware of restrictions on trading
¬ ensure that negotiations are disclosed to employees and advisors on
a “need to know” basis only


37
Filing of Material Contracts
¬ Subject to exceptions for certain contracts entered into in the
ordinary course of business, material contracts must be filed on
SEDAR

¬ although information may be redacted if disclosure would be
seriously prejudicial or would violate a confidentiality obligation,
certain information may not be redacted in any event (i.e.
events of default, termination rights or any term necessary to
understand the impact of the deal on the issuer)

¬ ensure that confidentiality provisions permit disclosure to the
extent required by law

¬ if the material contract constitutes a material change, it must be
filed concurrently with the material change report – if material
must be redacted, plan in advance

38
Change of Control Transactions
¬ Directors and officers must:
¬ act honestly and in good faith with a view to the best
interests of the corporation (“Duty of Loyalty”)
¬ exercise the care, diligence and skill that a reasonably
prudent person would exercise in comparable
circumstances (“Duty of Care”)
¬ Courts will generally defer to the business judgment of the
board provided that they have acted prudently and on a
reasonably informed basis
¬ In a change of control situation, a board’s decision will often be
subject to closer than usual scrutiny and, as a consequence, it
is particularly important in this context to avoid potential traps


39
Management Conflicts of Interest
¬ Potential conflicts of interest in connection with a change of control
transaction prospects of ongoing employment
¬ change of control payments
¬ Two recent cases in the U.S. demonstrate potential concerns that the
interests of senior management may not be aligned with the interests of
shareholders in the context of a change of control transaction
¬ In re: Topps
¬ sale of Topps to a private equity group led by Michael Eisner
¬ Eisner assured management that their employment would continue
post-closing
¬ competing offer (Upper Deck) did not provide the same assurances
¬ Delaware Court of Chancery found that the board had likely
breached its fiduciary obligations – enjoined Topps from seeking
shareholder approval until it amended its proxy circular to include full
disclosure regarding employment


40
Management Conflicts of Interest (cont.)
Lear Corporation
¬ Board did not perceive a conflict of interest and allowed CEO to
spearhead negotiations
¬ CEO negotiated an agreement that would permit him to accelerate $10.4
million in retirement benefits and retain employment
¬ Although the court ultimately determined that neither the board nor the
CEO breached its duties, it was highly critical of the process followed:
¬ Because the CEO might rationally have expected a going-private
transaction to provide him with the unique means to achieve his
personal objectives, and because the merger with Icahn in fact
secured for the CEO the joint benefits of immediate liquidity and
continued employment that he sought just before the negotiating of
that merger, the Lear stockholders are entitled to know that the CEO
harbored material economic motivations that differed from their own
that could have influenced his negotiating posture with Icahn. Given
that the special committee delegated to the CEO the sole authority to
conduct the merger negotiations, this concern is magnified


41
Management Conflicts of Interest (cont.)
¬ If senior management has an interest in a
transaction, adopt procedures or safeguards to
manage this conflict
¬ special committee
¬ oversight and recommendation to the board
¬ active role in negotiation
¬ fairness opinions
¬ independent valuation
¬ Maintain minutes and records which
demonstrate all steps to mitigate the impact of
any conflicts


42
Change of Control Transactions
¬ General obligation to act in the best interests of the company
¬ this will not always involve a singular focus on obtaining the best
price possible
¬ Supreme Court of Canada has clearly indicated that other
factors may be relevant (BCE v. 1976 Debentureholders)
¬ Nonetheless, the obligation to act “in the best interests of the
company” will generally include an obligation to ensure that the
company adopts a sales process which enables to the company the
best offer available
¬ No “blueprint” or “one size fits all” approach – provided that directors
act honestly and in good faith and exercise reasonable care,
diligence and skill, Canadians courts will generally defer to the
judgment of a board


43
Market Checks
¬ Two general approaches
¬ pre-agreement market check
¬ post-agreement market check
¬ Pre-agreement auction widely regarded as one of the
most effective ways for a board to discharge its fiduciary
duties
¬ limited auctions
¬ unrestricted auctions
¬ agreement typically includes “no-shop” provisions –
company may not actively solicit competing offers,
but may terminate the agreement to accept a
superior proposal
¬ deal protection (break fee/matching rights)

44
Go-Shop Provisions
¬ In certain circumstances, an auction may not be practical
¬ potential buyer may require exclusivity
¬ “damaged goods” concerns
¬ disclosure of confidential information
¬ open auction process may jeopardize employee, customer or
supplier relations (and drive down price)
¬ potential buyer may realize that it has overvalued the company
¬ “Go-shop” clauses have emerged as an alternative approach in
recent years
¬ target negotiates an agreement with a single buyer and then
actively solicits competing bids for 30 to 60 days
¬ most frequently used in U.S. deals with private equity funds


45
Advantages of Go-Shop Provisions
¬ Intended benefits of go-shop provisions include the
following
¬ allows seller to establish a “floor price”
¬ existence of a firm offer may make the company appear
more valuable
¬ enables targets to canvas the market without the risk of
being tainted by a failed auction
¬ more efficient to deal with one buyer only
¬ may increase willingness of a potential buyer to
complete required diligence (break fees ensure the
initial bidder will be compensated for expenses)


46
Criticism of Go-Shop Provisions
¬ Several commentators have criticized go-shop
clauses as “window-dressing” during the past year
¬ deal protection provisions (break fees/matching
rights) deter competing offers
¬ go-shop period provides insufficient time for a third
party to prepare a competitive proposal
¬ enables board to satisfy fiduciary obligations
without legitimately canvassing the market


47
Effective Use of Go-Shop Provisions
¬ Studies have shown that go-shop clauses can increase return
to shareholders, particularly when drafted to ensure that they
serve their intended purpose
¬ length of go-shop period
¬ no limits on universe of potential buyers
¬ bifurcated termination fees
¬ no formal matching rights during go-shop period
¬ diligent exercise of go-shop right
¬ Appropriate process depends on the circumstances
¬ do not employ a “cookie cutter” approach
¬ carefully consider alternatives and adopt an approach best
suited to the circumstances


48

WHEN DEALS ARE BROKEN
Miranda Lam


49
OVERVIEW

¬ Mechanisms for Dispute Resolution
¬ Common Forms of Dispute Resolution
¬ Comparative Strategic Advantages and
Disadvantages
¬ Choosing between Litigation or Arbitration
¬ Drafting an Arbitration Provision


50


51
Mechanisms For Dispute
Dispute Resolution Spectrum

1 2 3 4 5 6 7 8 9 10 11 12 13 14

Neutral Judicial
Early
Cybersettle Confidential Conciliation/ Case Mediation/ Arbitration/ Pre-Trial Settlement Summary
Partnering Negotiating Collaboration Neutral Trial
.com Listening Mediation Evaluation Arbitration Mediation Conference Conference Trial
Evaluation
Litigation

Increasing Outside Control

Adapted from the Alternative Dispute Resolution Practice Manual from CCH Canadian Limited. Original form of chart prepared
by Genevieve Chornenki, published by and copyright CCH Canadian Limited, North York, Ontario. Chornenki, Dispute
Resolution Spectrum from A. Stitt (ed.), Alternative Dispute Practice Manual (North York: CCH Canadian, 1996) at 1303.


52
Common Mechanisms For Dispute
Resolutions
¬ Alternative Dispute Resolution
¬ Mediation
¬ Arbitration
¬ Litigation


53
Alternative Dispute Resolution

¬ Mediation
¬ Process by which two or more parties to a dispute
attempt to resolve the dispute by reaching an
agreement amongst themselves by utilizing the
services of a mediator
¬ Rights based mediation
¬ Interest based mediation


54
Alternative Dispute Resolution

¬ Arbitration
¬ Process of resolving disputes between two or
more parties whereby a third party (an arbitrator)
hears or reviews evidence and renders a binding
decision based on the parties’ legal rights.
¬ The arbitrator may be a single person or a panel
of three whose appointment is agreed to by the
parties or pursuant to the rules of arbitration that
the parties have chosen.
¬ Process is consensual and consent cannot be
withdrawn once the process is commenced.

55
Litigation

¬ Litigation
¬ A claim is commenced by an aggrieved party in
the court against another.
¬ The dispute is resolved by a judge (or judge and
jury).
¬ Process is governed by civil litigation rules of the
jurisdiction in which the action is commenced.


56
Advantages of Alternative Dispute
Resolution
¬ Expert decision-maker
¬ Control over procedure
¬ Relationship preservation
¬ Confidential
¬ Cost effective
¬ Efficient
¬ Finality


57
Challenges with Alternative Dispute
Resolution Methods
¬ Lack of procedural certainty
¬ Difficulties with enforcement
¬ Appeals
¬ Inefficient


58
Litigation Process
¬ Advantages
¬ Certainty
¬ Enforceability
¬ Availability of options for recourse and relief
¬ Public
¬ Challenges
¬ Decision-maker unfamiliar with subject matter
¬ Inefficient
¬ Not cost-effective
¬ Relationships challenged
¬ Public


59
To Litigate or Arbitrate?

Considerations:

¬ Nature of the dispute anticipated to arise
¬ History and relationship between the parties
¬ David or Goliath
¬ Process v. outcome
¬ Interim relief
¬ Enforcement


60
If you arbitrate:

Considerations when drafting an arbitration clause:

¬ Choice of law and forum or place of arbitration
¬ Governing rules of arbitration/use of a neutral
administrative service provider
¬ Sole mechanism for dispute resolution
¬ Scope or subject matter for dispute resolution
¬ Mechanism to agree and/or appoint arbitration panel
¬ panel nomination and composition
¬ allocation of panel fees & costs


61
If you arbitrate:

¬ British Columbia International Commercial
Arbitration Centre (BCICAC) Model Arbitration
Clause
All disputes arising out of or in connection with this
contract, or in respect of any legal relationship
associated therewith or derived therefrom, shall be
referred to and finally resolved by arbitration
administered by the British Columbia International
Commercial Arbitration Centre pursuant to its
Rules.


62
Arbitral Procedure

¬ Ad hoc v. institutional rules or procedure
¬ Ad hoc
¬ Specific, tailor-made for specific circumstances
¬ Negotiated beforehand
¬ Institutional
¬ Neutral administrative service provider
¬ Defined body of rules
¬ Available to suit most situations
¬ Administrative fees


British Columbia International Commercial Arbitration Centre 63
Model Clauses
¬ Mediation Clause
The parties agree to attempt to resolve all disputes arising out of or in connection with this contract, or in respect
of any legal relationship associated with it or from it, by mediated negotiation with the assistance of a neutral
person appointed by the British Columbia International Commercial Arbitration Centre administered under its
Mediation Rules.
¬ To combine mediation with arbitration and therefore ensure a binding resolution, add the following additional paragraph
to the mediation clause set out above:
If the dispute cannot be settled within 30 days after the mediator has been appointed, or such other period
agreed to in writing by the parties, the dispute shall be referred to and finally resolved by arbitration administered
by the British Columbia International Commercial Arbitration Centre, pursuant to its Rules.
In the absence of any written agreement otherwise, the place of arbitration shall be Vancouver, British Columbia.
ADR Clause Encompassing Negotiation, Mediation and Binding Arbitrations
¬ All Inclusive Clause
¬ Amicable Negotiation
The parties agree that, both during and after the performance of their responsibilities under this
Agreement, each of them shall make bona fide efforts to resolve any disputes arising between them by
amicable negotiations and provide frank, candid and timely disclosure of all relevant facts, information and
documents to facilitate those negotiations.
¬ Efficient Process
The parties further agree to use their best efforts to conduct any dispute resolution procedures herein as
efficiently and cost effectively as possible.
¬ Mediation
The parties agree to attempt to resolve all disputes arising out of or in connection with this contract, or in
respect of any legal relationship associated with it or from it, by mediated negotiation with the assistance of
a neutral person appointed by the British Columbia International Commercial Arbitration Centre
administered under its Commercial Mediation Rules.
¬ Arbitration
If the dispute cannot be settled within 30 days after the mediator has been appointed, or such other period
agreed to in writing by the parties, the dispute shall be referred to and finally resolved by arbitration
administered by the British Columbia International Commercial Arbitration Centre, pursuant to its Rules.
In the absence of any written agreement otherwise, the place of arbitration shall be Vancouver, British
Columbia.
Source:http://www.bcicac.com/bcicac_adr_model_arbmed.php


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