Archive for January, 2015

When Arbitration Works, it Really Works

Monday, January 19th, 2015

One of the main advantages cited by those in favour of arbitration is that it is faster than litigation in the courts.  The flip-side argument is that it actually takes longer because in court the rules are already set whereas in arbitration (if not set before the dispute arose) the parties have to agree on what set of rules to use or else to create their own set of rules and this can give either party the opportunity to unnecessarily delay matters.  I’m not going to get into this debate since both sides have, to a certain extent, merit in their positions.  But I would like to recount a recent arbitration I was involved in, as counsel, that really worked out well – at least from a procedural standpoint (and, as it turned out for my client, on the merits as well).

My client has a business partner with whom they have a shareholders agreement.  One of the parties wanted to be bought out of the business by the other party and the shareholders agreement permitted this to occur.  If the parties could agree on the sale price then all is good.  Of course (because, why else would I have a story to tell), they didn’t agree on the price.  The shareholders agreement thought of this possibility and said that if they couldn’t agree on the price, then a valuator would be appointed to determine the price.  OK, but what if they couldn’t agree on a valuator?  Then the shareholders agreement provided that the valuator would be appointed by an arbitrator.  OK, and if they couldn’t agree on the arbitrator?  Then one would be appointed by the court.

Not a big surprise, they couldn’t agree on the price.  They couldn’t agree on the valuator.  And they couldn’t agree (at least initially) on an arbitrator.  The result was that the party who wanted to be bought out was threatening to bring an application to the court to have the arbitrator appointed.  By this point, things between the parties had become testy.  And then the lawyers stepped in.  The first thing I have to say is that I was pleased that both myself and the other lawyer took a very pragmatic approach to this.  It didn’t make much sense spending tens of thousands of dollars fighting in court just to get an arbitrator picked, only to then have the fight before the arbitrator as to whose valuator should be chosen.  This would increase legal costs unnecessarily and add to the acrimony.  So the other lawyer and I got on the phone and we quickly worked out an arrangement by which the arbitrator would be picked from someone who was an Ontario representative on the board of directors of the Canadian Institute of Chartered Business Valuators – of which there were about 5 people.  We also agreed on a “quick and dirty” method of proceeding that would have each side give their suggested valuator’s proposal to do the work, along with a 3 page written submission to the valuator as to either why their person should be chosen or why the other side’s person should not be chosen (or a combination of the two) and the arbitrator would take these submissions, have a one week period to put questions to the proposed valuators, and then make a decision.  All of this was quickly agreed between myself and the other lawyer, our clients agreed and we implemented the procedure.  We had a minor hiccup in that the first person agreed upon for the arbitrator’s role had a conflict of interest, but there wasn’t that problem with the second person chosen and the result was that in the course of a little over a month we had a decision on the valuator.

The end result was that the choice of the valuator was made at a fraction of the cost compared to if this had proceed to an application in court and in a fraction of the time that it would have taken if we had gone to court.

Now, I’m not going to go all “pollyanna” and view this with rose-coloured glasses and say that everyone should go with arbitration.  It is clear here that (a) both lawyers worked together to agree on a streamlined and cost-efficient procedure; (b) both parties wanted to have this decision made so that they could move on (as opposed to one side wanting to move forward quickly while the other wanted to drag its heels).  It is also clear that in many instances, you do not get both of these factors working in favour of your case – which means that even if you go the arbitration route, you still could get bogged down as badly (and maybe even worse) than if you had gone the litigation route.  The “moral of the story”, if you will, is that if all the stars align properly, etc., arbitration can be a very good alternative to the courts that will save you time and money (even, in this case, where the parties had to pay for the arbitrator’s fees).  The usual response to this is “yes, but if both parties agree to proceed as provided under the court rules, then the court can be just as fast as arbitration.”  That’s true, sort of.  We could have agreed to a simple approach for a motion before a Master in Toronto.  The only problem is that most motions before a Master in Toronto nowadays are being booked for 4 or more months in the future.  Until the Ontario government puts a lot more money into the legal system to help it get more judges / masters / registrars / etc. and to improve court facilities and systems, we will continue to have some systemic delays.  Again, there’s no need for me to get into this debate save and except to say that I fully expect that the government is doing the best it can among all of the various other competing priorities (health, education, infrastructure, etc.).  But the point of all of this is to say that, if everyone agrees and works together from the outset, arbitration can be a very worthwhile procedure for resolving your disputes.

CALC

 

Je Suis Charlie

Wednesday, January 7th, 2015

“I may disapprove of what you say, but I will defend to the death your right to say it.”  That quote is often, but incorrectly, attributed to the French writer Voltaire.

I will be the first to admit that Charlie Hebdo often pushes the envelope a little too far.  I may not agree with many things they publish.  I said the same thing for many years when Canada’s closest equivalent to Charlie Hebdo was in print – Frank Magazine.  But no matter how far Charlie Hebdo pushed things, nobody deserved to lose their lives over it.

And for that reason today,

 

Unfortunately, something to think about.

CALC

 

Record Retention Revisited

Saturday, January 3rd, 2015

It’s January and a not-so-young man’s heart turns to, um, er, well … administrative matters.  Time to put away closed files, do all those full (as opposed to “quickie”) bank reconciliations and general cleaning up of records to hand matters over to the accountant in the next month or so to get things ready for tax return and financial statement preparation.  Suddenly all those essays on what I did over Christmas vacation – even the ones I thought were really boring – seem to be super-exciting.  There’s nothing like a day spent cleaning your desk and organizing paper to get the old motor running !!

On April 10, 2009, I did a post that looked at records retention and gave some of the reasons for keeping records and what the consequences were of not keeping records if you should later be sued.  I think it’s time to revisit and expand on this topic and to discuss further the amount of time that one should keep records.

The answer to the question of how long should you retain records is a gigantic “that depends”.  Different records have to be retained for different periods of time and it becomes difficult to say with certainty.  However, I can give a bit of a helpful start.

BEFORE ALL OF THIS HOWEVER – ONE KEY RULE:  If you have been sued, or if there is a threat by someone that they will sue you, then all documents should be segregated and retained.  If the lawsuit is actually started, then nothing should be destroyed.  If it is only a threat, then records should be kept at least a minimum of 2 years from the date of the threat to sue you and, preferably, for 4 years or more.

1. Tax records.  For our friends at the C.R.A., the general rule is that you have to keep records for a period of 6 years.  That is, unless they tell you otherwise – in which case you have to keep the records for such additional period of time as is set out in the notice.  The current version of the CRA’s record keeping guide can be found at:

http://www.cra-arc.gc.ca/E/pub/tg/rc4409/README.html

[NOTE: I'm having trouble with my linking function, so please cut and paste the above and put in your browser instead of clicking on the link.  Thanks and sorry for the inconvenience.]

2.  Formal documents.  Wills.  Government issued documents (birth certificates, marriage certificates, immigration documents, real estate documents such as deeds to land, mortgages, etc.).  Trust deeds.  Documents such as these should be kept as long as you are alive (for personal documents – and, in the case of wills, even after your death) or with the business.  Probably the easiest way to define a formal document is to ask yourself (a) whether people normally go to a lawyer to get this type of document prepared or for help with these documents and (b) whether your replacement (for example, the executor of your estate, your replacement at work, etc.) would want or need to know about the existence of this document to be able to handle matters after you are no longer there.

3. Industry requirements / guidelines.  Are you in a regulated business?  For example, you are a doctor/dentist/chiropractor and the applicable College has rules requiring you to keep patient records and charts and x-rays for a specific minimum period of time.  If so, then you must comply with those requirements.

4.  Corporate records.  These are things like the articles of incorporation, by-laws, corporate resolutions – in other words, everything that is found in your company’s minute book.  The initial answer is simple – for however long your company exists, you keep these records.  A minute book for a company that has been around for 40 years should have 40 years worth of resolutions, etc.  But what happens if and when the company is wound up or otherwise ceases business.  Then you should keep them for either the 6 year tax requirement set out above or for the period of time determined for the next category – whichever is longer.

5.  General records (that is, everything not in categories 1, 2, 3 or 4).  There is no absolute requirement for the retention of records.  Suppose you get a letter from a supplier advising of the changes of prices to the supplies that you order.  If you continue to get invoices for your supplies, CRA is going to care about what you actually pay for your supplies, so you would have to keep the invoices for tax purposes, but the letter announcing the price changes is in most instances going to be irrelevant for the CRA.  If you ask most business people, they will say “it’s just a notice document, it’s not important, so feel free to throw it away as soon as you get it.”  And this is where the lawyer’s perspective differs from the business person’s perspective.  What happens if a dispute arises related to the price change?  When did you get notice of the change?  How did you get notice (was it a letter / notice / e-mail / fax)?  What were the terms of the price changes (for example, it’s hard for you to say “you told me that the new price would be $5 and now you’re charging me $7″ if you don’t have any longer the notice that said $5)?  So how long do you keep these records?  The answer is a resounding “I dunno”.  I’m not trying to be cute.  Let’s start with the easy answer – if the document relates to something more than 15 years ago, you are probably safe in destroying it.  But if the time since the document was created or the event to which it relates is less than 15 years ago we’re now into a grey area.

Again, let’s go with the minimum time period – two years.  Everyone in Ontario has up to 2 years to sue another person for any claim(s) that the first person has against the second person.  As a result, and at a minimum, therefore, you should keep records for at least two years.  The problem, however, is when does the 2 year period start to run?  An example should help.  Suppose you go to a party on New Year’s Day, 2014 and get more than tipsy and someone punches you and breaks your nose.  You definitely have until December 31, 2016 to sue the person.  But what if you don’t know (or remember) who did it?  And what if you find out on December 1, 2016 who did it?  Do you have only until December 31 to sue or do you have until November 30, 2018 – being two years after you learned of who did it?  Another example, you do a business deal and you are pretty sure that the other side has committed a fraud on you.  You cannot, however, confirm your suspicions until 3 years later – are you too late to sue or do you have 2 years from when you were able to piece it all together?  The answer for both questions is a resounding “it depends”.  The rule is that you have 2 years from when a reasonable person in your circumstances would have known that he/she could have sued.  If you did nothing for more than 2 years and then started to make inquiries after that time, you’re probably too late.  If you diligently looked everywhere for the information necessary to learn if you had a proper claim, you’re probably OK.  The reality, however, is that most cases fall somewhere in between these two extremes – and that’s why each case, and the answer to when the 2 years starts running, will depend on its own facts.

Now, we’ve looked at it from the perspective of when a plaintiff might be able to make a claim.  From the plaintiff’s perspective, he/she/it is likely going to keep the records relating to the claim.  But now suppose that you are the potential defendant.  You may not know that anything is wrong for years until suddenly one day you get a letter from a lawyer or you are served with a Statement of Claim.  If that happens more than 2 years later, you might get caught with your pants down (so to speak) if you have destroyed the documents related to the claim.  I often say to clients that if you want “pure” justice, you have to wait until you die and the other person to die and then God can give you pure justice.  Until then, the best you can get down here on Earth is justice based on whatever evidence can be proven in a court of law.  And in most commercial disputes, that translates into “he/she who has the most documents to prove her/his side of the case will win the case.”

At an absolute minimum, I would say that you should keep all documents for at least 2 years.  Beyond that, I would highly recommend that you keep documents for at least 5 years.  If you have the room in your business’ office (or in your garage or if you rent a storage locker), then I would recommend that you keep the records for 10 years or more.

Personally, I keep all of my records in this category for at least 15 years.  Yes, that means that this year I can finally destroy records from 1999 and all of my records will be “new millenium” documents.

Whatever you determine to be your “cut off point”, I further recommend, however, that you consider scanning documents before you destroy them.  Did you enter into a big sales contract 20 years ago that ended 15 years ago?  If yes, then you can probably destroy it now (assuming that you haven’t been sued on the contract).  But before you do that, why not run it through the scanner and save it?  The storage of many documents on one CD or DVD takes up almost no physical room in your office – but if you later get sued and a court determines that it was not too late for the plaintiff to sue then at least you will have some documents remaining.  In my case, therefore, I will be scanning documents for 1999 before they are destroyed.  The response to this suggestion that I often get is “but that’s going to take forever and I don’t have the staff to do it / can’t afford it / etc.”  The answer is simple: hire a local high school kid to do it.  You do not have to index the documents and just about any monkey can put a pile of paper in a sheet feeder on your multi-function printer/scanner/fax and press the “scan” button and save the file as “XYZ Inc. file” or whatever the name is for the file.  The high school kid gets office experience, your regular staff are free to do their jobs, and the cost to you is minimal (and a total pittance compared to the potential cost of not having the document anymore and you are sued on them).

Something to think about.

CALC