Law Times

lAw Times • April 11, 2011 NEWS PAGE 3 ity to opt out of costs orders are the latest alterations aimed at making third-party dispute resolution more accessible and eff ective for customers of in- vestment dealers. When an investor has a dis- pute with a dealer member of the Investment Industry Regula- tory Organization of Canada and wants to recover compensation, there are three avenues to choose from: non-binding dispute reso- lution through the Ombuds- man for Banking Services and Investments for matters up to $350,000, civil litigation or an arbitration program delivered by ADR Chambers for all of Canada except Quebec and the Canadian Commercial Arbitration Cen- tre for cases originating in that province. Investors don't give up the right to pursue arbitration or litigation if they're dissatisfi ed with a recommendation by the ombudsman, but it won't accept complaints that have already gone through arbitration or litigation. Although the arbitration pro- gram was well-used for the fi rst decade of its life, fewer cases have come to ADR Chambers since then. Th e expansion of the ombudsman's mandate in 2002 was a signifi cant factor in this decline. In the fall of 2008, IIROC instigated a comprehen- sive review and evaluation of the arbitration program. On Jan. 14, 2011, it announced changes designed to make the program more appealing and accessible. Th e award limit under the program has now gone up to $500,000. Previously, a sole ar- bitrator had the power to award up to $100,000 plus interest and costs. Th e rules of procedure now permit a claimant to opt to eliminate the arbitrator's discre- tion to award legal costs unless it fi nds that a party has acted in a manner that's unfair, vexatious, improper or in bad faith or has unnecessarily and unreasonably prolonged proceedings. IIROC's consultation re- sults showed that the risk of an adverse costs award may deter some investors from pursuing arbitration. Others may prefer to assume the risk as they would if they were pursuing civil litiga- tion. Th ere was broad support for either the elimination of the costs award or the ability to make an election. Douglas Melville, banking ombudsman and CEO, says the changes are "bang on" with his organization's recommendations to make the arbitration program Middle option for investment disputes introduced A BY JUDY VAN RHIJN For Law Times dramatically increased ceiling for investment disputes and an abil- a middle position between other available options. "You start with the low-cost, proce- durally informal complaints process, then move up to arbitration, which is more procedurally intense and for which most people engage counsel. Of course, beyond that is the court system. If you want a continuum of service, this gives the middle range an appropriate place to go. It will be suitable when there is an appropriate amount in dis- pute." Bette Shifman, executive director of ADR Chambers and administrator of the II- ROC arbitration program, says people are ready should the changes lead to an in- crease in arbitrations. "We haven't had a huge caseload for the last fi ve years. IIROC felt it was necessary to address this in a complete way. Th ey have certainly addressed the issues that arose from their con- sultation period." Shifman's own experience was that some people found the costs award an obstacle. She recalls comments to that eff ect and one particular case that didn't proceed further once the party realized the costs risk. "It can be wide open, you don't know what may result. In that case, the claimant didn't have counsel, but the investment fi rm did, and he was afraid he was exposing himself to something he couldn't predict." Th e election takes place at the beginning of the arbitration. Where there is no election, the default will be that the arbitrator has no discretion to award costs except in the circumstances listed above. Th e election lies with the investor because of the concern that the potential for an adverse costs award shouldn't be a deter- rent to choosing arbitration. In cases already in progress, the par- ties can opt out of costs by agree- ment, so there's no prejudice to those who relied on the rules in place at the commencement of the arbitration. Shifman reminds people that even without the risk of a costs order, there are other costs for the investor during arbitration. Th e prevailing approach to sharing arbitration fees, subject to the discretion of the arbitra- tor to reallocate those amounts, remains unchanged by the new rules. Th ere are also the costs of legal fees if the claimant chooses to have representation. Th rough its consultations, IIROC determined that a sig- nifi cant number of complain- ants retain legal counsel at some point during the arbitration pro- cess. "We do recommend that people get legal advice on how CORRECTION Stikeman Elliott LLP wasn't among class counsel denied a fee increase by the Court of Appeal. An article in last week's Law Times incorrectly identifi ed the fi rm as appellants in Smith v. Sutts Strosberg LLP. In fact, class counsel were Sutts Strosberg, Heenan Blaikie LLP, Paliare Roland Rosenberg Rothstein LLP, and Koskie Minsky LLP. complaints versus arbitrations yet and doesn't expect to. "Given what we do, it won't make a diff erence to us," he says. "Th e vast majority of our banking disputes are un- der $20,000 or $30,000. Th e average is well under $10,000. On the investment side, there can be larger amounts stem- ming from the market melt- down and even some dormant matters from the tech rackets, where compensation recom- mendations are fairly signifi - cant, but if you have a dispute of even $250,000, practically speaking, why wouldn't you come to us?" As Melville points out, 'In 16 years, with thousands of recom- mendations, we have been refused once,' says Douglas Melville. to proceed and whether to pro- ceed even if they do decide to proceed without legal counsel," says Shifman. "Arbitration is a legal proceeding that results in a fi nal decision." Melville hasn't seen any changes in the volume of the complaints process is free to the consumer. "Th e client can come to us with no risk. It was set up at the blessing of the regulator to be free to the investor. Where you have two lawyers facing off with procedural intensity, carry- ing your own costs becomes more appropriate." Shifman, meanwhile, notes people need to be aware that the arbitration program has to be taken more seriously than the complaints process through the ombudsman. "Th at's not an arbitration. Th ey make a recom- mendation. An arbitration re- sults in a fi nal, binding, enforce- able decision." For his part, Melville be- lieves the arbitration program was designed with that fact in mind. "If you have an enforce- able order, you need greater procedural rigour." Although an investigation by the ombudsman doesn't result in a legally enforceable deci- sion, Melville believes that's no reason to forego the complaints procedure for arbitration as the ombudsman's recommendation is almost always followed. "In 16 years, with thousands of recom- mendations, we have been re- fused once," says Melville. "Th e tension built into the system is that if the recom- mendation is refused, I have an obligation to make the refusal public. To large fi rms that have invested millions in their brand, it's a big consideration." In fact, Melville notes that the one refusal came from a two- person mutual fund that dereg- istered almost immediately after the conversation with represen- tatives of his organization. Untitled-1 1www.lawtimesnews.com 4/4/11 9:32:44 AM

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