Written By Daniel T. Gallagher

Current Trends in ADR

While this paper will largely focus on ADR developments and future directions in the Province of Alberta as it relates to the energy sector, it has to be kept in mind that the energy sector is also affected by developments seen in other parts of Canada, including British Columbia, Saskatchewan, as well as Newfoundland, Nova Scotia and New Brunswick. The ability of lawyers to practice more freely from jurisdiction to jurisdiction within Canada, likely has come at a very good time for lawyers involved in the energy sector. Clients who previously had focused in the energy sector in Alberta, now appear to have interests in all or most of the jurisdictions mentioned above.

The movement towards ADR in the energy sector in Alberta is illustrated by the revised form of joint operating procedure presently being proposed by The Canadian Association of Petroleum Landmen (the CAPL Operating Procedure). The CAPL Operating Procedure is attached to and forms part of most joint operating agreements between oil and gas companies operating in Western Canada. The CAPL Operating Procedure (last revised in 1990) is about to undergo a further revision that will contain an optional dispute resolution procedure involving negotiation, mediation, and arbitration or litigation. In all of the various revisions of the CAPL Operating Procedure up to and including 1990, there is no such dispute resolution procedure and the parties were largely left to litigate in the ordinary course unless the parties agreed otherwise.

Another major move in the energy sector's use of ADR can be seen through the involvement of the Alberta Energy and Utilities Board (EUB) setting up an ADR process which it describes as "Appropriate Dispute Resolution". The EUB has a regulatory role regarding oil and gas wells, pipelines, production facilities, electrical substations and transmission lines in the Province of Alberta. It also has a role in resolving issues and disputes among affected parties, such as between energy companies and landowners. As a result, the move of the EUB to emphasize ADR, and in particular, mediation, reinforces the fact that the Canadian energy sector is strongly moving towards an ADR model.

Following in the footsteps of the EUB, the National Energy Board (NEB), on July 18, 2003, announced its Appropriate Dispute Resolution Guidelines. The NEB is an independent federal agency that regulates several aspects of Canada's energy industry. Its purpose is to promote safety, environmental protection and economic efficiency in the Canadian public interest within the mandate set by Parliament in the regulation of pipelines, energy development and trade. Much like the EUB, the NEB deals not only with matters that involve disputes or potential disputes between industry participants, but also deals with disputes between industry participants and landowners.

In May 2002, a number of petroleum industry interests came together to form the Company to Company Dispute Resolution Task Force (the C2C Task Force). The EUB, the NEB, and CAPL are represented on the C2C Task Force as well as at least seven other petroleum industry interests. The C2C Task Force has a broad mandate, which includes providing feedback on the proposed new CAPL Operating Procedure, including the dispute resolution clause, and to promote ADR generally in the energy industry.

As well, over the next 6 to 12 months, it is anticipated that there will be a pilot project in Edmonton and Lethbridge. Any party proceeding to litigation within those two judicial centers of the Alberta Court of Queen's Bench will, after the filing of defenses and the 90 day period for filing an Affidavit of Records (that runs from when a statement of Defense is filed), be able to require the other parties to the litigation to participate in a mediation. The onus will be on the party objecting to the mediation to go to Court in order to either postpone the mediation, or to prevent it from occurring altogether.

In addition, the use of ADR clauses in Canadian, North American and international energy sector agreements, and in particular, operating agreements, seems to be expanding fairly rapidly. This is particularly true where there are projects where large sums of money are invested. While such ADR clauses may have existed in the past and most certainly have been used in gas pricing contracts, the emphasis today on the larger projects appears to be to use a well thought out ADR clause that is not simply "boiler plate". In negotiating operating agreements, representatives of parties in the energy sector now appear to be willing to devote time to the ADR clause. Commercial mediation and arbitration rules are often referenced or set out in detail. As well, many clients are interested in exploring or using the appointment of an "Expert", including the use of the ICC International Centre for expertise to select the Expert if parties cannot agree on who should be used to resolve their dispute.

Overall, there appears to be a heavy move in the energy sector to move towards ADR, as parties within that sector seek to find a resolution to their disputes that is both quicker, confidential and helps to preserve business relationships.

Notice to Mediate – Alberta Style

In 2000, the Alberta Minister of Justice, Mr. Dave Hancock, Q.C., expressed his view that some formal system needed to be implemented so as to encourage parties to disputes to make more frequent use of the mediation process. For the following few years, Alberta Justice organized seminars and discussions involving various stakeholders who had an interest in the mediation process in the Province of Alberta. Eventually, this led to the selection of a committee by Alberta Justice of these various stakeholders to propose a process that would encourage parties to disputes to make more frequent use of the mediation process. The general inclination as expressed by the stakeholders in the meetings appeared to be to move towards a British Columbia "Notice to Mediate" system as opposed to the Ontario system of Mandatory Mediation. It was felt that at least one party to the dispute ought to have a desire that mediation proceed before such a process was required to occur. In addition, the Calgary Chamber of Commerce and the Alberta Chambers of Commerce passed resolutions supporting, among other matters, some form of the "Notice to Mediate" system for the Province of Alberta in conjunction with Case Flow Management Pilot Project as proposed by the Justices of the Alberta Court of Queen's Bench.

In this regard, a process has now been devised that is expected to be implemented on a pilot project basis in the Court of Queen's Bench Judicial Districts of Edmonton and Lethbridge over the next 6 to 12 months. The basics of the system are that:

1. Any parties to a dispute after the time for filing a Defense and the 90 days has run for filing an Affidavit of Records, can indicate to the other parties to the dispute that it desires mediation.
2. That such mediation shall take place unless one of the parties to the dispute successfully makes an application to the Court of Queen's Bench to either postpone, or to altogether avoid, a mediation.

In addition, a roster is to be developed of professional mediators.

With the broad number of energy sector related disputes that are still handled through the Court process, this new form of "Notice to Mediate System", if fully implemented over the entire Province of Alberta, will certainly give members of the industry the ability to push other parties with whom they have a dispute to use the mediation process and not simply rely on the willingness of another party to agree to a voluntary private mediation or Judicial Dispute Resolution.

ADR Clauses and Agreements

While arbitration has long been used as a means of resolving disputes under gas pricing contracts, there is an increasing use of dispute resolution provisions in other contracts used in the energy sector and in particular, in relation to operating agreements on significant energy sector projects. Typically, such dispute resolution provisions call for either negotiation, mediation and arbitration, or just mediation and arbitration. In some such contracts in which the writer has had involvement in drafting the ADR clauses, disputes under certain dollar amounts are dealt with by a single arbitrator, while disputes over certain dollar amounts are dealt with by a three arbitrator panel. As with the new proposed CAPL Operating Procedure, it is common to see in such agreements a provision that either party can ask for mediation, but the same provision normally provides that if a mediator is not agreed to, no mediation takes place and the parties proceed to arbitration.

Normally, the arbitration provisions of such contracts either:

1. Indicate a particular arbitration institution is to be used;
2. Incorporate certain parts of institutional commercial arbitration rules without using the institution for the arbitration; or
3.  Have commercial arbitration rules that have been developed specifically for the particular agreement.

European owned or controlled corporations seem to be reluctant to use anything other than internationally recognized institutions and rules, such as the ICC. The incorporation of the Rules of Evidence of the International Bar Association in conjunction with the internationally recognized institution and rules, appears to be a means of overcoming concerns of the European controlled entities that they will not be treated fairly under some domestically controlled Canadian process, and at the same time, gives the Canadian controlled entities some assurance that the arbitration process will be conducted in a manner and by rules that have some resemblance to a Dispute Resolution Process with which they can identify.

Dispute resolution clauses in the significant energy sector agreements also are increasingly making reference to disputes that are not to be or attempted to be resolved by arbitration or mediation but are to be resolved by an "Expert", with such Expert to be chosen by the ICC International Centre for Expertise if the parties cannot agree on whom that expert should be. The use of an Expert as opposed to arbitration or mediation (or both), usually involves a dispute that is a very narrow technical issue that may arise under the operating agreement, leaving the balance of the potential disputes under the agreement to be dealt with through mediation and/or arbitration. In developing such Expert Dispute Resolution processes, the parties often have to be reminded of the fact that some form of fair procedure still has to be incorporated into that process, including the Expert meeting with the parties jointly to define the future conduct of the matter. This meeting ensures that all communications between the parties and the Expert are made in writing, with copies of such material provided simultaneously to each party to the dispute. Meetings between the Expert and either party is prohibited unless both parties have a reasonable opportunity to attend any such meeting. Parties seemingly have to undergo an unpleasant experience with an Expert determination in which the Expert does not follow some due process, to learn how unfair a result can be if Experts are left to resolve a dispute without safeguards ensuring that everyone is dealt with fairly and that all parties to the dispute have an equal opportunity to present their side of the case to the Expert.

Conclusion

Private industry, administrative tribunals and governments are moving within the energy sector as a whole to an ADR model for resolving disputes. The energy sector, due to both its nature and governmental requirements, needs to constantly look for a means of resolving disputes between industry participants and with the public. As a result, there are few industry sectors that come to mind, that are more in need of establishing appropriate dispute resolution processes than the energy sector. Increasingly, the energy sector is recognizing the benefits of more efficient resolution of disputes, confidentiality and preservation of business relationships that are associated with ADR. Perhaps, fearing the unknown, non-Canadian owned or controlled entities participating in the energy sector do not want to be involved in dispute resolution through a domestic Court process with which they are not familiar, whether this be a Canadian Court process or otherwise, making arbitration conducted in accordance with recognized international standards a desirable alternative. The increased use of Experts to resolve certain narrow areas of dispute under operating agreements used in the energy sector, raises interesting issues as to whether this process can be controlled so as to be fair to all parties concerned. Also in question, is whether or not such Expert decisions will avoid judicial review, with the parties viewing the possibility of such judicial review (at least when they sign the agreement) as being something that is highly undesirable.

Overall, the move towards ADR in the energy sector is strong and is already producing benefits in both industry/industry and industry/public disputes.