Arbitrating Unpaid Invoices: Is It Worth It?
Arbitration presents numerous advantages for commercial parties. The procedure can be more flexible; a time limit can be placed on the length of the process; and the parties can select a decision maker with specific expertise. Yet, some legal disputes are so simple that they may not be worth hiring an arbitrator. At Youngman Law, we carefully review such disputes with our clients to help them avoid the unnecessary expense of arbitration in situations where simple summary judgment is possible.
In this article, we will discuss section 7 (2) 5 of the Arbitration Act, 1991, S.O. 1991, c. 17. While parties to an arbitration agreement are typically bound to resolve their disputes by arbitration, section 7 (2) 5 of the Arbitration Act, 1991 allows Courts in Ontario to ignore an arbitration agreement where the matter is proper for summary judgment. This provision gives limited discretion to the Courts on the basis that motions for summary judgment may sometimes be the most just and expeditious manner to resolve a dispute.
Imagine a situation where a party properly delivered goods or performed services but did not receive payment of its invoice(s). This is a simple liquidated debt matter which could be resolved quickly and easily in the Courts through a summary judgment motion. If the parties were to instead proceed with arbitration, they would incur additional costs to rent a room for the arbitration and pay the fees of the arbitrator(s), which can easily cost between $250 to $800 per hour. The costs of arbitration can thus quickly accumulate and sometimes exceed the amount at dispute, especially where parties agreed to multiple arbitrators.
In similar circumstances, Youngman Law successfully helped its clients avoid arbitration by bringing motions for summary judgment and relying on section 7 (2) 5 of the Arbitration Act, 1991. This option is often available when dealing with the collection of an unpaid invoice because such cases are usually proper for summary judgment. Ontario Courts grant summary judgment where they are satisfied that there is no genuine issue requiring a trial with respect to a claim or defence (Rule 20.04 (2) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194).
That being said, the Courts should only ignore arbitration agreements in the simplest of cases where there are no contested facts. In Allen v. McMaster Trust (Trustee of), 2011 ONSC 584, the Ontario Superior Court of Justice warns that the exception in section 7 (2) 5 of the Arbitration Act, 1991 should only be exercised where it is readily and immediately demonstrable on the record that the responding party to the proposed summary judgment motion has no basis whatsoever for disputing the claim(s) of the moving party.
In conclusion, while arbitration presents numerous advantages for commercial parties, it may not be worth arbitrating certain simple disputes. Arbitration costs can quickly accumulate and sometimes even exceed the amount at dispute. At Youngman Law, we have experience helping our clients avoid “arbitration regret” by obtaining summary judgment quickly and at minimal costs where it is available. Before initiating arbitration proceedings, we recommend that you speak with one of our experienced lawyers to review whether your case is appropriate for summary judgment pursuant to section 7 (2) 5 of the Arbitration Act, 1991.
Article written by Lawyer Patrick Bernard