An Alberta Perspective on Mediation in Energy Disputes

Prepared by E. David D. Tavender, Q.C. of Fraser Milner Casgrain, Calgary, for the ICC and CBA Conference "International Commercial Arbitration & Energy Disputes – A Global Perspective" May 29-30, 2003 at Calgary, Alberta

I think I can safely say, without fear of exaggeration, that 15 years ago, mediation in the energy industry in Alberta was virtually unheard of. Energy disputes settled. Energy disputes went to Court. Energy disputes got arbitrated. Mediation, however, seemed to be an alien matter reserved for the resolution of labour disputes and the odd family law problem. Then, in the early 1990’s, a sea-change occurred. Two very large cases involving fires at the Fort McMurray upgrading facilities of Syncrude and Suncor were each successfully resolved by mediation. Inspired in part by the success of those two mediations, and in any event, coincidental with them, developments occurred which increased the visibility and use of mediation in the energy industry. These developments included:

The use of Judicial Dispute Resolution in the Alberta Court of Queen’s Bench, where sitting Judges assisted consenting parties by conducting mediations and settlement conferences;

The establishment, primarily through the efforts of some of the major energy companies in Calgary, of the Canadian Foundation for Dispute Resolution, which promoted the use of mediation and other appropriate dispute resolution techniques;

The report of the CBA Civil Justice Task Force in August, 1996, which recommended the non-mandatory use of early and ongoing mediation in civil disputes in Canada;

The adoption in 2001 by the Alberta Energy Utilities Board ("AEUB") of voluntary (but strongly encouraged) mediation for regulatory disputes;

The creation, approximately one year ago, of a multi-disciplinary "Company Against Company Dispute Resolution Task Force" in Calgary to promote early resolution of disputes in the energy industry.

Based on what I hear and my own practice as a mediator and as counsel, I know that mediations are now occurring in the energy industry in Alberta. That, in itself, is not a particularly reliable measurement, nor does it tell us how the energy industry perceives mediation, how frequently it is used, and with what success.

I thought the participants at this conference might benefit from some information emanating directly from the energy industry as to its recent experience with mediation in Alberta. To obtain this information, I have utilized two sources. The first source is the AEUB, which has reported on the success of its Appropriate Dispute Resolution Program. The second source is a survey of some of the leading members of the energy industry that I conducted for the purposes of this paper. Relying on these two sources, I am pleased to report that the energy industry in Alberta is indeed using mediation, and doing so with an encouragingly high degree of success. There are, however, reservations and concerns that need to be addressed if there is to be an increased effective use of mediation in the future.

Let me first turn to the AEUB experience. The AEUB has provided publicly available information on the success of its ADR program for the years 2001 and 2002. For 2001, the AEUB reported that its staff participated in 115 completed facilitations of which 98 were resolved, that is an 85% success record. For the same year, it reported there were 23 completed mediations of which 19 were resolved (indicating a success record of 82%). In the year 2002, the AEUB staff completed 154 facilitations, of which 129 were fully resolved, for an 84% success record. In addition, 27 mediations were completed with a success rate of 81%.

My survey, based on the responses at the time of writing of 16 energy companies, indicates that in the last two years there were 32 non-regulatory mediated disputes, of which 16 led directly to a settlement and five led indirectly to a settlement. At least one of these mediations has not been completed. In result, 52% of these mediations led directly to a settlement, 16% led indirectly to a settlement, which combined produces an overall success record of about 68%.

Most of the non-regulated mediations were domestic (as opposed to international) disputes. Many (over 22%) occurred early in the dispute resolution process before the discovery phase had commenced. One respondent added "the earlier the better", as parties are forced to prepare and examine their and the other side’s case in a realistic manner. Over 37% of those responding reported a positive response to their mediation experience and 50% of the respondents indicated they would be inclined to use mediation more frequently in the near future. It is interesting to note that mediation was not typically mandated in the contracts utilized by the respondents, although it was included as a contractual option available to the parties in some instances.

The survey responses contained some valuable insights into why mediation had not, in certain circumstances, been utilized. The most frequently expressed reason for not having recourse to mediation was the belief that the parties could settle their own disputes without the need for a mediator. This reason was cited by 50% of the respondents. 25% of the respondents did not mediate certain disputes because they did not want to compromise. In 44% of the responses, companies indicated that they had not utilized mediation because they were doubtful that mediation would work or mediation was not considered.

In terms of trends, just over 56% of those responding felt there was an increasing trend in the use of mediation, whereas 27% of those responding detected no trend towards an increased use of mediation.

Many of the respondents contributed valuable additional insights, two of which may have particular significance to the participants at this conference. There is a concern expressed that many persons (including executives, contractors and customers) are reluctant to submit disputes to mediation because of a lack of understanding and familiarity with the process. This concern shouts out for enhanced education about mediation, not only within the energy industry, but amongst all participants in the justice system. One respondent suggested increased use of mediation will be inhibited until the Court of Queen’s Bench in Alberta adopts a mandatory or quasi-mandatory Court directed mediation process. This is a reform that I strongly endorse.

The second concern raised was focused on the problem of selecting mediators. Several respondents had encountered difficulties in identifying qualified and experienced mediators for particular disputes. One respondent said that the selection of the right arbitrator was the most significant, yet the hardest, decision to make because the parties are often dependent on no more than the subjective opinions of other people about whom they should select as mediators. This is a problem that all of us frequently encounter. How, indeed, does one determine who has the right skills and style appropriate for a given case? The ICC and other ADR institutions are actively endeavouring to monitor and rate the performance of mediators on their rosters, but the opinions of the institutions may not always be comprehensive and a large number of mediations, in any event, are self-administered by the parties. Mediation training, while highly desirable, is no substitute for experience, and experience for mediators is not easily obtained without a track record and a reputation for success. I think the concern raised by these respondents is a legitimate one, and it remains a major challenge for all involved in ADR to help parties identify those mediators who are most qualified, experienced and appropriate for a given case. Having said that, I think the high success record reported in the conduct of mediations is a credit to the skills of those who acted as mediators. Word-of-mouth and the subjective opinions of those who have been involved in mediations may continue to be the best, if imperfect, information about who to retain in the next case.

Standing back, I believe that mediation is the most significant recent reform that has occurred in the justice system in Alberta. Mediations are now firmly on the radar screen in the energy industry. Where used, mediations have yielded successful resolutions in an encouragingly high number of cases. Mediation, as one of the respondents to my survey accurately put it, "is time effective for preparation, client involvement and resolution. It is also more cost effective than litigation or arbitration. It offers a greater number of potential solutions and tends to be without any significant adverse risk." On the other hand, mediation is not a panacea and is no substitute for parties conducting their own settlement negotiations, or having recourse to judicial or arbitral decisions when compromise is not an option. Further growth in the use of mediation in the energy industry in Alberta is not assured without increased education, without the development of more qualified and experienced mediators and without, perhaps, procedural reforms in the Court of Queen’s Bench promoting the use of mediation in appropriate cases.

In closing, I would like to thank those companies in the Alberta energy industry who assisted me by responding to my survey request. I hope their responses and the discussion contained in this paper will facilitate a lively debate and lead to further improvements in the effective utilization of mediation.