Final offer selection at its simplest is a process where the parties in arbitration agree that each will make a final offer and the arbitrator can make a final award by choosing from one of the offers made. The blunt question recently before the Ontario Superior Court in Kroupis-Yanovski v. Yanovski was whether final offer selection was a permissible process in a family law mediation-arbitration about financial issues where the parties have agreed to the process. This case was very unlike a court case and did not involve the arbitrator hearing witnesses examined and cross-examined by the parties. That was one of the arguments raised by the losing party at the appeal.
The Process Used
This case started as a court case, where the parties consented to an order that the parties resolve their dispute by mediation-arbitration (“med-arb”) before a mediator-arbitrator who would have all the powers of a Superior Court Judge. The parties then signed a written med-arb agreement.
The case proceeded first in mediation and a number of issues were resolved. The process entered the arbitration phase. The arbitrator consulted with the parties and their counsel about the process. The process agreed to by the parties and used by the arbitrator was that each party would present to the other a comprehensive offer to settle with submissions. If neither party selected the other’s offer within seven days, the arbitrator was to hold a brief oral hearing, select the better of the offers and issue a final award incorporating all of the terms of one of the offers. He could not pick and choose from each of the offers nor could he incorporate terms that he designed.
The arbitrator held a conference call with the parties after he received the offers. The arbitrator asked the parties to consider modifying the process to allow him to fashion a result different from their offers. The husband declined. The arbitrator held a short oral hearing to clarify the submissions made. He also encouraged them to “re-tool” their offers; both parties submitted a further final offer. The wife structured her offer to allow the arbitrator to select on an issue- by-issue basis if the husband also structured an issue by issue offer. The husband made an offer which was not issue-by-issue and the arbitrator determined the award based on selecting the wife’s offer over the husband’s offer.
The issues for arbitration were financial issues of child support and spousal support and the equalization of net family property. The issues did not involve a determination of where and with whom the children would reside.
Court Review of the Award
The husband did not like the award and appealed to Court. The case is an important one as it deals with the argument that the award should be set aside because the process used by the arbitrator was “not court-like.” The arguments raised were (i) final offer selection was ill-suited to resolve a family dispute with multiple issues (ii) the process did not include an opportunity to provide sworn testimony or cross-examine; and (iii) the reasons given by the arbitrator were inadequate. The court reviewed the award based on a correctness standard.
Suitability for Multi-Issue Disputes
On the first point, during the process the arbitrator recognized that the final offer process – based on selecting one offer or the other was not ideal and asked the parties to consider modifying the process to allow him to select elements of one offer and other elements of another offer. The wife agreed to a severable offer process; the husband did not and therefore the arbitrator was not able to select from each of the offers.
The judge determined that his task was to determine whether the final offer selection process was contrary to law, not whether it was the most suitable way of resolving a multi-issue dispute. He found that the final offer process used was not contrary to law.
Lack of Court-like Processes
The court found that there was no general requirement that the arbitration process be “court-like” with an oral hearing, sworn testimony, and an opportunity to examine and cross-examine witnesses. The court found that the process used did not contravene the parties’ arbitration agreement or the Ontario Arbitration Act as the arbitrator:
- Determined the process in consultation with the parties;
- The parties agreed to the procedure;
- The husband refused to agree to modify the procedure to deal with severable issues;
- The arbitration agreement did not clearly mandate the use of a court-like hearing;
Adequacy of the Reasons
The Ontario Arbitration Act provides that an arbitration award shall state the reasons on which an award was based. The B.C. Arbitration Act is structured differently – arbitration awards must be in writing (s. 25) and a party may apply to a court for an arbitrator to give more detailed reasons for the award (s. 33(1)), however, that is limited to reasons sufficient to consider any question of law arising out of the award, if an appeal were taken (s. 33(2)). The court cannot make an order for more detailed reasons unless the arbitrator was informed in advance of making the award that a reasoned award would be required or shows a good reason why written notice was not given ( s. 33(3)).
If case were heard in B.C. the adequacy of reasons argument would have been dismissed, but for different reasons.
The standard for adequacy of reasons in a court case is set out in R. v. Sheppard, an earlier Supreme Court of Canada case. The reasons must justify and explain the result. The losing party needs to know why they lost. The reasons must allow for informed consideration of the grounds for appeal. Interested members of the public can satisfy themselves that justice has been done.
The court held that reasons in arbitration are given for different purposes. The parties often choose arbitration over court because it is less costly and speedier. Lengthy reasons add to expense and delay. Parties often choose arbitration because it is private; the decisions are of no precedential value so lengthy reasons are not required for a public review process. The arbitrator must give reasons explaining why the arbitrator reached his conclusion. The court held that the reasons were not lengthy but were sufficient to explain why the arbitrator preferred one offer over the other and for appellate review.
Overall, I expect that the result in this Ontario case would have been the same if the arbitration had proceeded in British Columbia, applying British Columbia law. Our Family Law Act in B.C. respects and encourages parties to reach agreements and use alternative dispute resolution processes to resolve family disputes. This makes sense as highly litigious processes can often prevent the need for parties to adjust and restructure their ongoing post- separation relationship, particularly where there are children involved.
It is important for any party entering into an arbitration agreement to consider how the process can be designed to meet their needs. Most arbitration processes are tailored to the needs of the parties following a preliminary meeting. In this case I wonder whether a more palatable result for the parties might have been achieved if the final offer arbitration had been structured as final issue offer selection, as suggested by the arbitrator. That would have given flexibility for the arbitrator to find for example, that he preferred one party’s offer on the issue of spousal support and another party’s offer on property division.
The case was one where the judge found that the parties understood what they were agreeing to, there was no allegation of unequal bargaining power, duress and the parties had counsel.
Paul Love, Arbitrator & Mediator
January 8, 2017