Justice Morawetz of the Ontario Superior Court (also a celebrity among lawyers for being the Morawetz in the trio of Houlden, Morawetz, & Sarra, authors of the Annotated Bankruptcy and Insolvency Act) announced last week (on 8 March) that the next step in the long-running Nortel insolvency proceedings would be a cross-border joint trial to carve up the rump of Nortel’s liquidated assets (approximately nine billion dollars). The trial will be held in conjunction with the United States Bankruptcy Court for Delaware. The procedural niceties are yet to be sorted out, but the aim of this unprecedented decision is to avoid contradictory findings in both jurisdictions and achieve an efficiency to reduce litigation costs, given the long history of the Nortel proceedings.
The joint trial mechanism was chosen in the face of another option, favoured by the European participants in the Nortel bankruptcy: arbitration. Arbitral panels regularly make decisions which take into account multiple jurisdictions and sets of laws, and the panel can involve lawyers or experts from more than one country. Arbitration is usually seen as a highly effective tool for dealing with international disputes efficiently. Most sets of arbitration rules specifically contemplate a global scope. Yet, arbitration was rejected, as the issues at stake in Nortel were too high-profile and important for a private dispute-resolution mechanism to be used, and, possibly, it was believed that no cost savings would be realized.
The joint trial can be expected to occur before the end of the year. It will be a history-making event, technologically, legally, and procedurally, for the judicial system in Canada.
Meanwhile, in the United States, the question of the enforceability of arbitration agreements is making an appearance in the Supreme Court. On 27 February, the Court heard oral arguments in American Express v. Italian Colors Restaurant. The case is filed as a class action against American Express related to the credit card’s acceptance fee policies. American Express is attempting to force the plaintiff vendors to arbitrate the dispute, relying on an arbitration clause their agreement. The Second Circuit Court of Appeals (which covers New York, Connecticut, and Vermont) invalidated the arbitration clause, on the basis that it effectively prevented the vendors from exercising their anti-trust (competition law) statutory rights. The issue before the Court is whether the Arbitration Act, a Federal law passed by the United States Congress to facilitate arbitrations, sets aside those rights.
There is precedent for this idea in the form of the United States Supreme Court’s 2011 decision in AT&T Mobility LLC v. Concepcion, in which the arbitration act was held to trump state laws that themselves invalidate arbitration clauses in consumer agreements. If the Supreme Court applies Concepcion and allows the appeal, arbitration in the United States will be further enshrined as a valid alternative to Court processes specifically designed to protect collective rights of action.