NI 31-103 Dispute Resolution Service Requirements - What Does It Mean? David Di Paolo January 26, 2012
Overview Requirement for ADR pursuant to s. 13.16 of NI 31-103 Status of requirement What is mediation What is arbitration PMAC s dispute resolution program Examples of other dispute resolution Processes Ombudsman for Banking Services and Investments IIROC Arbitration process
NI 31-103 Registration Requirements and Exemptions On April 15, 2011, the Canadian Securities Administrators (the CSA ) published amendments to NI 31-103. These amendments include requiring registered firms to provide complainants with dispute resolution services.
NI 31-103, Section 13.16 13.16 Dispute resolution service (1) A registered firm must ensure that independent dispute resolution or mediation services are made available, at the firm s expense, to a client to resolve a complaint made by the client about any trading or advising activity of the firm or one of its representatives. (2) If a person or company makes a complaint to a registered firm about any trading or advising activity of the firm or one of its representatives, the registered firm must as soon as possible inform the person or company of how to contact and use the dispute resolution or mediation services which are provided to the firm s clients.
Status of Section 13.16 Many interest groups have provided comments in respect of s. 13.16. The transition period has been extended to September 28, 2012 so the CSA may further consider the regime in light of questions received. There may be proposed amendments for s. 13.16 in the future.
Alternative Dispute Resolution Alternative Dispute Resolution (ADR): Settling disputes between parties by means other than traditional litigation ADR encompasses many techniques including negotiation conciliation mediation arbitration
Mediation Mediation is an informal process in which a neutral third party helps participants reach their own agreement for resolving a dispute. Mediation is a co-operative, interest based approach to conflict resolution. Unlike a judge or arbitrator, the mediator has no authority to impose a solution.
Arbitration Arbitration is a process by which parties submit disputes to a neutral third party to adjudicate on dispute. Arbitration is a more formal process than mediation, the result being a decision rendered by an arbitrator, which is binding on the parties. All provinces have domestic arbitration legislation. However, there are significant differences between the legislation in each province.
PMAC s Proposal PMAC s Board recommended a partnership with the ADR Institute of Canada ( ADR Canada ) to provide dispute resolution services to its members. PMAC partnered with ADR Canada in June 2011, with services being available to PMAC Members commencing in December 2011.
ADR Canada ADR Canada will assist PMAC Members, at their option, in sourcing the ADR professional best suited to their needs according to practice area, skill level, location, or any number of additional criteria. PMAC has developed a protocol for their dispute resolution program. Addresses how process is initiated, arbitration vs. mediation, selection of arbitrator/mediator and fees.
Other dispute resolution processes Ombudsman for Banking Services and Investments IIROC Arbitration Process
Ombudsman for Banking Services and Investments ( OBSI ) OBSI is the national independent dispute resolution service for consumers and small businesses with a complaint they can t resolve with their banking services or investment firm. At present all IIROC and MFDA member firms must participate in the OBSI process if clients elect to initiate the process Where a complaint has merit, OBSI may recommend compensation up to a maximum of $350,000.
OBSI OBSI has a mandate to investigate complaints, including the power to interview staff of the participating firm and the complainant and obtain copes of the relevant documents from the participating firms. Following the investigation of a complaint, OBSI is required to make a determination and recommendation. OBSI attempts to complete its investigations within 180 days.
OBSI An OBSI recommendation is not binding on a participating firm. However, if a participating firm does not accept the recommendation of OBSI, OBSI must make public the name of the participating firm, the recommendation and the circumstances of the case. To date, only one firm has ever refused an OBSI recommendation.
OBSI - Critiques OBSI is funded by the industries it investigates. From the client side, there appear to be issues with respect to OBSI s independence due to perceived conflict of industry funding and a lack of power in dealing with financial institutions. On the dealer side, there have been a number of complaints that OBSI is pro-client and fails to apply appropriate legal standards in assessing liability/damages
FAIR Canada The Canadian Foundation for the Advancement of Investor Rights ( FAIR ) has suggested that the CSA amend the language of s. 13.16 of NI 31-103 to required all registered firms to participate in an approved ombudservice as opposed to a dispute resolution process. FAIR has suggested that the CSA recognize OBSI as the approved ombudservice.
In a letter to the CSA, FAIR stated that allowing member firms to select and pay the service provider made available to their clients to resolve complaints against them poses significant potential for conflicts of interest, both real and perceived.
IIROC Arbitration In addition to OBSI, investors may choose to bring a complaint against an IIROC Dealer Member to arbitration. IIROC Dealer Members are required to participate and comply with the arbitration program procedures. No equivalent requirement for MFDA member firms. IIROC has designated two independent arbitration organizations for resolution of disputes between Dealer Members and clients. The arbitrations are conducted by a sole arbitrator. The arbitrator guides the proceedings, reviews the arguments of each party, and arrives at a binding decision.
IIROC Arbitration The arbitrators for the IIROC program are empowered to award up to $500,000 plus interest and legal costs. The arbitrators for this program are empowered to award some or all legal costs to one party or the other as part of a decision. However, the investor has the option to choose at the outset in a proceeding to have the two parties pay their own legal costs and not be liable to an arbitrator s ruling that they cover some or all of the other party s legal costs. It is still possible for the arbitrator to overrule that option and retain the right to award costs if he or she determines that one party has acted in bad faith or in an unfair, vexatious or improper manner, or has unnecessarily prolonged proceedings.
IIROC Arbitration Arbitration fees (administrative fees, disbursements of the arbitration organization and the arbitrator s fees) are divided equally between the parties unless the arbitrator chooses to reallocate those amounts. Unlike with legal costs, the investor does not have the option to change this practice. Although arbitration fees are typically shared by the parties, the arbitrator does have the discretion in some circumstances to award arbitration fees to one or both parties. In 2011, administration and file opening fees for arbitration range from $200 - $450. The maximum arbitration fee for 2011 was a little over $11,800.00.
David Di Paolo Partner 416-367-6108 ddipaolo@blg.com THANK YOU
Chubb Specialty Claims Laila Brabander, LL.B AVP, Canadian Zone Specialty Claims Chubb Specialty Insurance 1
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ADRIC - PMAC DISPUTE RESOLUTION PROGRAM January 26, 2012 29
Outline ADR Institute of Canada ADRIC PMAC Dispute Resolution Program PMAC Roster Fees Accessing the Program Initiating Mediation or Arbitration Selecting a Mediator or Arbitrator Appointment of Mediator or Arbitrator 30
Who We Are ADR Institute of Canada National non profit organization (ADRIC) 1800 ADR practitioners in Canada with affiliates in BC, Alberta, Saskatchewan, Manitoba, Ontario, Quebec and Atlantic Provinces ADRIC members are Mediators or Arbitrators who adhere to professional standards and ethics considered best practice in Alternative Dispute Resolution field Members have designations such as: Qualified Mediator Chartered Mediator Chartered Arbitrator These designations indicate practitioner s degree of skill and experience as a professional in field 31
ADR Institute of Canada What We Do For consumers of ADR services: o Members of public, lawyers and other professionals consult ADRIC for assistance in sourcing ADR professional best suited to their needs according to practice area, skill level, location or any number of additional criteria o In selecting an ADRIC professional, you are assured of member s commitment to upholding Institute s Code of Conduct and Code of Ethics and have an avenue of redress should standards of practice fall below a certain standard 32
ADR Institute of Canada Codes of Conduct ADRIC members are held accountable to practice standards that include a Mediator s Code of Conduct and a National Code of Ethics National Mediation and Arbitration Rules In 1992 ADRIC introduced National Mediation Rules and National Arbitration Rules which are now widely used and accepted throughout Canada Both sets of Rules provide a Model Dispute Resolution Clause that can be used by parties to a contract to ensure that any dispute that arises can be dealt with as quickly and efficiently as possible with minimum disruption to parties 33
ADRIC PMAC Dispute Resolution Program ADRIC has been selected by PMAC to facilitate mediation and arbitration services for PMAC Members and their clients Requirement in NI 31 103 that firms provide independent dispute resolution services, such as mediation or arbitration, for their clients to resolve complaints (Sept 2012) Participation by PMAC Members in ADRIC PMAC Dispute Resolution Program is voluntary The benefits of participation in the program include: o preferred pricing o a pre screened roster of Mediators and Arbitrators o independent assistance to PMAC Members and their clients with the dispute resolution process 34
PMAC Roster Mediation Roster and Arbitration Roster Rosters were selected by ADRIC, as a neutral third party screened by a panel, with input from PMAC with respect to possible conflict of interest issues only Roster members were selected based on their experience as Arbitrators or Mediators and their knowledge and experience relating to financial services, securities and portfolio management Mediators and Arbitrators on the PMAC Roster are: o Independent contractors who carry professional liability insurance o They do not work for ADRIC, PMAC or PMAC Members Only clients of PMAC members will be given access to the PMAC roster 35
PMAC Roster Who are the Mediators and Arbitrators? 22 Mediators 4 in BC 7 in AB 2 in SK 7 in ON 2 in NS 18 Arbitrators 6 in BC 4 in AB 1 in SK 4 in ON 2 in NS 1 in NF Many will travel to other Provinces Bilingual services available 36
PMAC Roster Background Lawyers, retired judges, chartered accountants, engineers, corporate executives, former mutual fund dealer, professors, ombudsman Experience Many have been in the ADR industry for over 20 years Financial instruments, financial services industry Securities regulation (including KYC and suitability) Portfolio management Pension plans Tax issues Insurance Claims in contract and tort against financial advisors and their employers Labour and employment law, civil litigation, counsel in securities class action CSA, IIROC and MFDA Compliance 37
Fees Pay per use system no ongoing retainer PMAC has paid for the cost of setting up the Program as a service to its Members PMAC will pay ADRIC s per case administration fee on behalf of all PMAC Members ($550 per case) PMAC Member responsible for all expenses and fees payable to the Mediator or Arbitrator selected under the program, which will be charged at a preferred rate to PMAC Members ($400 $600 per hour) 38
Accessing the Program How Clients can Access Services PMAC Members can advise their clients of the Program any way they choose to do so (i.e. on their web sites, newsletters, or by any other formal or informal process) Program Administrator: Mena Sestito, Senior Administrator ADR Institute of Canada 416 487 4733 mena@adrcanada.ca Verification of Entitlement to Service When client contacts ADRIC he or she will be asked to provide their name and name of the PMAC Member in writing ADRIC will contact PMAC Member to verify that individual is a client of PMAC Member 39
Initiating Mediation or Arbitration Completing a Notice of Request to Mediate After verification, ADRIC will provide client Form A Notice of Request to Mediate (see Appendix A) Client to complete Form A and delivers to PMAC Member and ADRIC Within 2 weeks of receipt of Form A, ADRIC will provide client with Mediation Roster Completing a Notice of Request to Arbitrate After verification, ADRIC will provide client Form A Notice of Request to Arbitrate (see Appendix B) Client to complete Form A and deliver to PMAC Member and ADRIC Upon receipt of Form A, ADRIC will provide both parties with Notice of Commencement of Arbitration (see Appendix H) ADRIC may, at any time following the commencement date, provide client with the Arbitration Roster Client has 14 days from date of commencement to provide Statement of Claim to PMAC Member and ADRIC. Within 14 days, PMAC Member must deliver a Statement of Defence and Counterclaim, if any, to client and ADRIC 40
Selection of Mediator or Arbitrator Form B Instructions for Mediator Selection or Instructions for Arbitrator Selection (see Appendices C and D) Client can then select 5 Mediators or 5 Arbitrators on PMAC Roster, in order of preference Form B is returned to ADRIC and upon receipt, ADRIC sends Form B to PMAC Member, as filled out by client PMAC Member is then asked to rank the 5 names in order of preference ADRIC will determine Arbitrator or Mediator with highest composite ranking for appointment as Arbitrator or Mediator 41
Appointment of Mediator or Arbitrator ADRIC will contact most highly ranked Mediator or Arbitrator Mediator or Arbitrator will sign Form C Appointment as Mediator or Appointment as Arbitrator (see Appendices E and F) Once Mediator or Arbitrator appointed, he or she will contact the PMAC Member and client and a Mediation or Arbitration Agreement with appointed Mediator or Arbitrator will be signed NOTE: Neither ADRIC nor PMAC are parties to this contract nor responsible or liable for conduct or outcome of Mediation or Arbitration An agreement acknowledging that neither PMAC nor ADRIC are liable for conduct or outcome of Mediation or Arbitration must be signed by PMAC Member and client (see Appendix G Acknowledgement of Exclusion of Liability) 42
Q & A 43