Legal Matters: Cannabis companies must brush up on the difference between litigation and arbitration
January 5, 2023 By Matt Maurer
When people negotiate and draft contracts, the dispute resolution section is often only considered in passing as the parties are more focused on the business terms of the deal. However, the significant differences between litigation and arbitration must be considered at the outset since once a dispute has arisen, it is often too late to come to an agreement as to how the dispute will be adjudicated.
One of the most significant differences between litigation and arbitration is privacy and this is especially pertinent in the cannabis industry.
While no company enjoys airing out its dirty laundry, cannabis companies in particular often have business information which, if made public, would be harmful to the company’s competitive position in the marketplace.
Litigation, within the context of this article, is defined as the pursuit of a legal dispute through the court system. While most jurisdictions in Canada have similar processes, this article will discuss the process in Ontario as example.
Litigation begins with one party (the plaintiff) preparing a statement of claim, which is a document that outlines what the plaintiff is seeking as a remedy and the factual basis upon which the plaintiff says they are entitled to it.
After the statement is “issued” (stamped by the court and given a court file number) it is then served on the defendant. The defendant then has typically 30 days to prepare a statement of defence in which it sets out its own side of the story. There may be a counterclaim, or what is known as a reply, from the plaintiff, too.
After the pleadings have been exchanged, the parties are then obligated to compile, list, and produce all of the documents in their power, possession or control which are relevant to the lawsuit, whether helpful or harmful.
After the productions have been exchanged, the parties proceed to oral examinations for discovery, which is when the lawyers of each party get to question a representative of the opposite party. No judge is present for the examinations, but a transcript is taken which can be used at the trial.
Once the matter is ready for trial, the plaintiff “sets it down” for trial. A pre-trial conference with a judge is scheduled to see if the matter can be resolved and if not, to address any trial related procedural issues. The trial date is then set.
While there may be some additional interim motions and case conferences, the foregoing is generally how a lawsuit proceeds in Ontario. From the time a claim is prepared until a trial occurs typically takes two years or longer.
Arbitration occurs when there is an agreement to resolve a dispute privately rather than through the court system. The agreement to arbitrate is usually contained within a contract between the parties that is drafted before either party knows that a dispute will actually occur. In some instances, parties who are not subject to an arbitration clause will mutually agree to arbitrate a dispute after the matter has become contentious.
In some instances, the procedure to be followed for the arbitration is set out in the contract. In other instances, the contract stipulates that the arbitration will follow a set of domestic or intentional arbitration rules. In many instances, the procedure is not mandated at all and the parties, their lawyers and the arbitrator agree upon a procedure to be followed.
An arbitration is commenced when one party sends the other party a notice that they intend to arbitrate. From there, the parties need to select an arbitrator to hear the dispute. If an arbitrator cannot be agreed upon, the court appoints an arbitrator for them.
As indicated above, the procedure in an arbitration can vary wildly. In some instances, it follows the procedure in litigation very closely, in others there are modifications to the normal litigation rules.
Instead of having to produce every relevant document as is the case in litigation, parties may only produce documents they intend to rely on. In some cases, there are oral discoveries before the hearing, in others there are not.
As it relates to the hearing, sometimes the evidence in chief (each side’s own evidence) is entered via written affidavit as opposed to oral testimony. And in almost every instance, the ability to cross-examine the other side on their evidence is built into the process.
Matt Maurer is a partner and co-chair of the Cannabis Law Group at Torkin Manes LLP in Toronto, Ont.
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