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Conflicts sometimes arise between shareholders of the same company. If this is the case, it may be advantageous to have an arbitration clause in your shareholders’ agreement to avoid having to settle your disputes in court.
The arbitration clause can provide several advantages to both the shareholders who are in conflict and the company itself. Indeed, the fact of not going to court to settle a dispute may allow, in certain cases, to have access to a faster process where costs may be reduced. In addition, the arbitrator’s decision will remain confidential, unlike judgments rendered by the courts, which are public in accordance with the principles set out in the Code of Civil Procedure1. Thus, the very existence of the dispute will remain confidential, which will have the effect of keeping the reputation of the parties involved intact.
The arbitration clause can be drafted in a number of ways to meet the needs and objectives of the parties adhering to it. It could be drafted very broadly and apply to a wide range of disputes, such as oppression remedy or judicial liquidation, or it could be more restrictive and provide for a specific list of potential disputes that will be covered by the clause or excluded from its application. For example, it will be common to reserve the right of the shareholder and/or the corporation to go to court to obtain an interim or interlocutory injunction.
It is also possible to determine what powers the arbitrator will have and how he will determine the outcome of the dispute. For example, will the arbitrator have to render his decision according to the law applicable in Quebec or will he have the mandate to act as an amiable compositeur, i.e. to reconcile the interests of the parties?
In addition, it is common to add terms and conditions relating to the procedures to be followed in a dispute before an arbitrator, such as the number and selection of arbitrators, the rules and procedures applicable.
Obviously, since the drafting of such a clause must be adapted to each company, it is preferable to mandate an experienced professional who can advise and guide you. Do not hesitate to contact our team who will be able to answer all your questions and will be pleased to assist you in your efforts.
1 Code of Civil Procedure, RLRQ, c. C-25.01.