Tort And Fraud Claims Fall Within Arbitration Agreement: Ontario Court Of Appeal

In Haas v. Gunasekaram, 2016 ONCA 744, the Ontario Court of Appeal recently held that claims in tort and fraud, and resulting claims to set aside the agreement between the parties, were within the jurisdiction of the arbitral tribunal under an arbitration agreement. Accordingly, the court action between the parties was stayed.

This decision is important due to the pro-arbitration principles of contractual interpretation which the Court of Appeal adopted, and due to its finding that the claims in tort and fraud – which are often found to fall outside arbitration clauses – were properly within the jurisdiction of the arbitral tribunal.

Background

The four parties to the actions were shareholders in a company which started a restaurant. They entered into a shareholders agreement which contained an arbitration clause. The arbitration clause read as follows:

If at any time during the currency of this Agreement, or after the termination hereof, any dispute, difference or question shall arise, or any failure to agree as specifically hereinabove referred to, shall occur among the parties hereto or certain of them, respecting this Agreement or anything herein contained then every such dispute, difference or question or failure to agree shall be referred to a single arbitrator to be appointed by the parties to the dispute within ten (10) days of such referral… [underlining added.]

The restaurant failed and Mr. Haas brought an action against the other three shareholders claiming that he had been induced to enter into the shareholders’ agreement by fraudulent misrepresentations. The defendants brought a motion to stay the action, submitting that the claim must be dealt by way of arbitration. The judge hearing the motion dismissed it on the ground that Mr. Haas’ claims fell outside the arbitration agreement. The Court of Appeal allowed the appeal.

Decision of the Court of Appeal

The decision of the Court of Appeal contains the following elements:

  1. A broad interpretation should be given to the arbitration agreement. The court said:

    “The law favours giving effect to arbitration agreements. This is evident in both legislation and in jurisprudence……the statutory language in s. 7 of the current Arbitration Act is directory, not equivocal. It strongly favours giving effect to an arbitration agreement. This policy direction is reinforced by s. 17 of the Arbitration Act [which authorizes the arbitral tribunal to rule on its own jurisdiction]….. The same pro-arbitration orientation is found in the jurisprudence….  It is now well-established in Ontario that the court should grant a stay under art. 8(1) of the Model Law where it is ‘arguable’ that the dispute falls within the terms of an arbitration agreement…. [quoting from the decision in Gulf Canada Resources Ltd. v. Arochem International Ltd. (1992), 66 B.C.L.R. (2d) 113 (B.C.C.A.), at paras. 39-40]: ‘Only where it is clear that the dispute is outside the terms of the arbitration agreement or that a party is not a party to the arbitration agreement or that the application is out of time should the court reach any final determination in respect of such matters on an application for a stay of proceedings….Where it is arguable that the dispute falls within the terms of the arbitration agreement or where it is arguable that a party to the legal proceedings is a party to the arbitration agreement then, in my view, the stay should be granted and those matters left to be determined by the arbitral tribunal….’a deferential approach’ allowing the arbitrator to decide whether the dispute is arbitrable, absent a clear case to the contrary, ‘is consistent both with the wording of the legislation and the intention of the parties to review their disputes to arbitration.’”

  2. The court’s review of the misrepresentations alleged by Mr. Haas showed that they largely related to the defendants’ failure to perform their obligations under the shareholders’ agreement. There was only one alleged misrepresentation relating to conduct before the shareholders’ agreement, that the proposed location had a proven track record of successful restaurants. To establish his case, Mr. Haas would be relying on the contractual documents.
  3. The court considered that the arbitration agreement was “broad in scope.” It particularly referred to the words “if any dispute, difference or question shall arise, or any failure to agree as specifically hereinabove referred to, shall occur among the parties hereto or certain of them, respecting this Agreement or anything herein contained.”
  4. The court held that tort claims do not automatically fall outside an arbitration agreement. As long as “either claimant or defendant relies on the existence of a contractual obligation as a necessary element to create the claim, or to defeat it” or “the matter in dispute is referable to theinterpretation or implementation of some provision of the Agreement” or “the claim …relie[s] upon a breach of the contract as the source of the unlawfulness to ground” the claim, then a broadly based arbitration agreement applies. The court also echoed the caution cited in other cases that the court should “be wary of cases in which a party to an arbitration agreement seeks to avoid it by pleading a common law tort”
  5. The court also held that the plaintiff’s claim that fraud vitiated the agreement between the parties did not mean that the arbitral tribunal lacked jurisdiction. It just meant that the tribunal had the authority to decide that issue under section 17 of the Arbitration Act, 1991. That section enacts the competence-competence principle, namely that the arbitral tribunal has authority to decide its jurisdictional competence. In conclusion, the court said:

    “Put simply, in cases involving arbitration agreements, fraud does not necessarily vitiate everything. It is a matter of interpretation. The arbitration agreement in this case contains broad language, referring to “any dispute, difference or question…or any failure to agree…respecting this Agreement or anything herein contained then every such dispute, difference or question or failure to agree shall be referred to a single arbitrator. There is no exclusion for tort claims, misrepresentation or fraud.”

Discussion

The Court of Appeal’s finding that the arbitration agreement was a “broad” one is useful to those relying on arbitration agreements. The court might have taken a different view. The word “arise” is not as broad as, say, “relating to”, and the words “respecting this Agreement or anything herein contained” could arguably limit the arbitration to contractual disputes, and nothing more. Nevertheless, the court held that these words established a “broad” arbitration clause.

The Court of Appeal’s conclusion that tort and fraud claims fall within the arbitration clause – at least to the extent of the arbitral tribunal’s entitlement to first determine whether they do – is very significant. This decision effectively over-rules or calls into question prior lower court decisions that, in less arbitration-friendly days, held to the contrary.

The key to the decision is, of course, the competence-competence principle. Once the tort and fraud claims arguably fall within the arbitration agreement, then the court must allow the arbitral tribunal to first decide whether they do or not. At that point, the court’s work is done, until the tribunal makes a decision on that issue which is brought back to the court for review. It is the direction of the legislature in section 17 of the Act – adopting the competence-competence principle –and the obligation of the court to apply that principle that results in the modern “hands off” attitude of courts toward arbitration. That attitude is one of the defining elements of the modern law of arbitration.

See Heintzman and Goldsmith on Canadian Building Contracts, 5th ed., chapter 11, parts 7 and 8.
Haas v. Gunasekaram, 2016 ONCA 744

Arbitration – jurisdiction of the arbitral tribunal – competence-competence – stay of court proceedings

Thomas G. Heintzman O.C., Q.C., FCIArb                                      October 23, 2016

www.heintzmanadr.com
www.constructionlawcanada.com

This article contains Mr. Heintzman’s personal views and does not constitute legal advice. For legal advice, legal counsel should be consulted.

Multiplicity Of Litigation Is Not A Sufficient Reason To Stay An Arbitration

The Saskatchewan Court of Appeal has recently released an interesting decision dealing with arbitration and court proceedings arising from a construction contract. In Saskatchewan Power Corp. v. Alberici Western Constructors, Ltd., 2016 CarswellSask 186, 2016, the court held that the arbitration clause of the main contract between the owner and the contractor should be enforced even though there was court litigation involving subcontractors. Accordingly, the Court of Appeal upheld the stay of the court action, even though the action had originally been commenced by the same party which now wanted it stayed, the contractor.

In the course of its decision, the Saskatchewan Court of Appeal set forth a number of principles that will be useful to remember when, as may often happen in construction disputes, arbitration and court proceeds are commenced among the various parties involved in the building project.

Background

Saskatchewan Power (the owner), entered a construction contract with the Alberici Western and Balzers Canada, (the contractor) (AB Western). The contract contained an arbitration clause. AB Western entered into a number of subcontracts. The relevant subcontracts required, in the event that there were disputes between the parties to the subcontract, that the subcontractors participate in arbitration with the owner or delay the subcontract dispute resolution process until the dispute resolution procedures under the main contract were completed.

AB Western serve a notice of arbitration under the main contract with the owner and, as a matter of caution, issued a statement of claim as well. AB Western said that it intended to proceed with the arbitration and had only commenced the action in case there were any issues falling outside the arbitration and to protect against limitation issues. In the action against SaskPower, AB Western also joined two subcontractors as defendants.

SaskPower served a Defence and counterclaim in AB Western’s action. SaskPower asserted that third-party claims falling outside the scope of the arbitration clause would have to be pursued through the courts, with the result that there would be a multiplicity of proceedings if the arbitration proceeded.

AB Western applied to stay its own court action so the arbitration could proceed. SaskPower applied to stay the arbitration on the ground that the arbitration would result in multiplicity of proceedings. SaskPower said that there were as many as 15 separate entities that might be involved in the litigation, and that all the disputes should be decided in the one court action.

The application judge agreed with AB Western’s position, stayed the action commenced by AB Western and dismissed SaskPower’s application to stay the arbitration. SaskPower appealed and the Saskatchewan court of Appeal dismissed the appeal.

The Saskatchewan Court of Appeal’s decision

There are many elements to the Court of Appeal’s decision. It may be easiest to set them forth in numerical propositions:

  1. The Court of Appeal held that AB Western’s application to stay the action was the most relevant application because if it were dismissed, the arbitration would be stayed automatically. As the court said:

“…as per s. 8(4) of the Arbitration Act, no arbitration of a dispute may be commenced if a court refuses to stay litigation relating to a matter subject to arbitration. In other words, if the stay of AB Western’s action ordered by the Chambers judge is set aside, then SaskPower does not have to be concerned about its application to stay the arbitration. The arbitration will be stayed automatically by virtue of s. 8(4).”

  1. Section 8 of the Saskatchewan Arbitration Act did not preclude the application being made by AB Western to stay its own action. Section 8 says that a motion to stay an action brought by one party to an arbitration agreement may be made “on the motion of another party to the arbitration agreement.” (underlining added) While this wording might seem to preclude AB Western from seeking to stay its own action, it was entitled to bring its application under section 37 of the Saskatchewan Queen’s Bench Act which states as follows:

“37(1) Nothing in this Act prevents a judge from directing a stay of proceedings in any action or matter before the court if the judge considers it appropriate.

(2) Any person, whether a party or not to an action or matter, may apply to the court for a stay of proceedings, either generally or to the extent that may be necessary for the purposes of justice, if the person may be entitled to enforce a judgment, rule or order, and the proceedings in the action or matter or a part of the proceedings may have been taken contrary to that judgment, rule or order.

(3) On an application pursuant to subsection (2), a judge shall make any order that the judge considers appropriate.

  1. In considering the exercise of the discretion under section 37, the Court of Appeal    agreed with the application judge:

– that the factors in section 8 of the Arbitration Act were “helpful, if not mandatory.”

– that the two step approach to the stay application set out in Ontario Justice Lederer’s 2004 decision in Farris v. Staubach Ontario Inc. was not necessarily applicable. The two Saskatchewan cases that had referred to Farris did not hold it up “as being descriptive of the only way the merits of an application for a stay can be assessed” and one of those decisions questioned its applicability to a motion to stay a party’s own action.

– that the application should be guided by the principles underlying the Arbitration Act.

Here, the Court of Appeal’s decision is notable:

“…most importantly, the Chambers judge was entirely correct to let himself be guided largely by the terms of the Arbitration Act in the situation here. The matter before him was not just any application for a stay. It was an application for a stay brought against the close background of the Arbitration Act and brought by a party to an arbitration agreement desirous of moving forward with that proceeding. In these circumstances, it was incumbent on the Chambers judge to ensure his decision fit coherently with both the spirit and the particulars of the Arbitration Act. It would have been a mistake for him to have done otherwise.” (underlining added)

  1. The Court of Appeal held that section 29 of the Queen’s Bench Act did not require a different result. Section 29 reads as follows:

29(1) The court shall grant to the parties to an action or matter all remedies to which the parties appear to be entitled with respect to any legal or equitable claims that they have properly brought forward so that:

(a) all issues in controversy between the parties are determined as completely and finally as possible; and

(b) a multiplicity of legal proceedings concerning the issues is avoided. (underlining added)

While SaskPower argued that section 29 mandated that the judge avoid the multiplicity of proceedings, the Court of Appeal disagreed. The section was directed to remedies, and was not a “generalized and free-standing directive to Queen’s Bench judges telling them, in all contexts, to do whatever is necessary to avoid or eliminate a multiplicity of proceeds.”

Moreover, Section 7 of the Arbitration Act contained the more specific legislative direction. That section states that “No court shall intervene in matters governed by this Act, except for the following purposes…” Multiplicity of proceedings is not one of those purposes. In this situation the particular set for the in section 7 should prevail over the general set forth in section 29. As the Court of Appeal said:

“In other words, notwithstanding s. 29, the Chambers judge’s assessment of the multiplicity of proceedings issue had to fit coherently with the dispute resolution architecture put in place by the Legislature through the terms of the Arbitration Act. As a result, his focus on that Act was entirely appropriate.”

  1. SaskPower relied upon sub-section 7(c) of the Arbitration Act, which states an exception to the “no court interference” rule contained in the initial words of the section. Sub-section 7(c) says that the court can interfere “”to prevent unequal or unfair treatment of parties to arbitration agreements.” SaskPower said that multiplicity of proceedings amounted to such “unfair treatment.” The Saskatchewan Court of Appeal disagreed. It held that sub-section 7(c) is directed toward procedural fairness of the arbitration itself, and with “maintaining the internal integrity of the arbitration process established by the parties.” The court added:

“As a result, a judicial intervention pursuant to s. 7(c) would not normally lead to a permanent stay of an arbitration in favour of proceedings in the courts. Rather, such an intervention would be aimed at dealing with the unequal or unfair treatment in question and getting the arbitral proceedings back on the rails. None of this fits easily with the argument advanced by SaskPower.”

  1. The Court of Appeal made particular reference to the UNCITRAL Model Law on International Commercial Arbitration. It held that while the Model Law did not contain a provision identical to section 7 of Saskatchewan’s domestic Arbitration Act, “nonetheless, the theme of the jurisprudence it has generated is of some assistance here.” After referring to section 8 of the Model law, the Court of Appeal said:

“Overall, the decisions dealing with Article 8 are to the effect that the prospect of a multiplicity of proceedings is not a valid reason for refusing to refer the parties to arbitration. Rather, the clear theme of the case law is that the risk of parallel or overlapping proceedings is not a basis for refusing to refer a dispute to arbitration for the simple reason that the Model Law does not identify it as such.”

  1. The Court of Appeal concluded its judgment with this important statement:

At the end of the day, the Arbitration Act is clear. When a claim comes within the terms of an arbitration agreement, a court “shall” stay the action with respect to that claim. The only exceptions are the limited ones enumerated in s. 8(2). This will doubtless sometimes create inefficiencies in resolving disputes where a contract does not include an appropriate multi-party arbitration clause. Costs might be duplicated. There could be a risk of inconsistent findings of fact or law. However, this is the inevitable and foreseeable consequence of the way the Arbitration Act is worded.

Discussion

For those in favour of a court attitude that is supportive of arbitration, this decision will be a useful reference. The decision recognizes the necessity sometimes to start both arbitral and court proceedings as a matter of caution. It facilitates the termination of the court proceedings without penalizing the party who commenced both proceedings, and recognizes that the cases dealing with applications to stay court proceeding brought by a party seeking to avoid an arbitration agreement are less relevant to a stay motion brought by a party who commenced the action for safety sake and seeks to uphold the arbitration agreement.

The decision’s reference to the UNCITRAL Model Law is also interesting. Clearly, the Court of Appeal wished to harmonize the principles of domestic and international commercial arbitration.

See Heintzman and Goldsmith on Canadian Building Contracts, Chapter 11, part 8

Saskatchewan Power Corp. v. Alberici Western Constructors, Ltd., 2016 CarswellSask 186, 2016 SKCA 46

Arbitration – Multiplicity of proceedings – Staying court action or arbitration

Thomas G. Heintzman O.C., Q.C., FCIArb                                 July 24, 2016

www.heintzmanadr.com

www.constructionlawcanada.com

Ontario Court Of Appeal Upholds Decision In Popack v. Lipszyc Re: UNICTRAL Model Law

In my article on April 24, 2016, I commented upon the important decision of the Ontario Superior Court in Popack v. Lipszyc, 2015 CarswellOnt 8001, 2015 ONSC 3460. That decision has been recently upheld by the Ontario Court of Appeal.

The Court of Appeal did not address the various legal issues dealt with in my article on April 24, 2016. Rather, the Court of Appeal decided the appeal by reviewing the Superior Court’s discretion to set aside the arbitral award. The Court of Appeal held as follows:

  1. The Superior Court has a discretion, not a duty, to set aside an arbitral award if the award contravenes the UNCITRAL Model Law or the Ontario International Commercial Arbitration Act (ICAA).
  1. In exercising this discretion, there is no bright line test to determine whether an arbitral award should or should not be set aside.
  1. In exercising her discretion, the Superior Court judge was entitled to take into account the conduct of the parties and the effect of setting aside the award. In her decision, the Superior Court judge considered: that the party now complaining to the court about the award corresponded with the arbitral tribunal during its deliberations, without telling the other party, and did not expressly object to the tribunal undertaking activity of which it now complained; and the fact that a witness had died since the arbitration hearing and would not be available for a re-hearing if the arbitral award was set aside. The Court of Appeal held that the Superior Court judge was entitled to consider those matters in exercising her discretion.
  1. The Superior Court judge was not obliged to put the complaining parties’ arguments, or these other factors, into separate compartments relating to each Article of the Model Law relied upon by the applicant. Rather, the court was entitled to look at the matter from an overall perspective. The Court of Appeal said:

“I do not see how the outcome of that balancing exercise can depend on the specific label placed on the procedural error giving rise to the Article 34(2) complaint. For example, characterizing the procedural failure as a breach of Ontario “public policy” if it could be so characterized, would not, in my view, automatically make the breach more serious or tip the scale in favour of setting aside the award. Whatever label is placed on the procedural error, and whichever subsection of Article 34(2) is invoked, the essential question remains the same — what did the procedural error do to the reliability of the result, or to the fairness, or the appearance of the fairness of the process?….The application judge made no error in choosing not to give separate consideration to each of the provisions of Article 34 advanced on behalf of Mr. Popack.” (emphasis added)

See Heintzman and Goldsmith on Canadian Building Contracts, 5th ed., chapter 11, parts 3(d), 6 and 11(b).

Popack v. Lipszyc, 2016 CarswellOnt 2243, 2016 ONCA 135

Arbitration – International Commercial Arbitration – review of arbitral award – discretion to set aside an arbitral award

Thomas G. Heintzman O.C., Q.C., FCIArb                                     May 18, 2016

www.constructionlawcanada.com

www.heintzmanadr.com

Can The Parties Contract Out Of The UNCITRAL Model Law?

The Model Law of the United Nations Commission on International Trade Law (UNCITRAL) applies to international commercial arbitration agreements and awards. The Model Law has been adopted in all the provinces and territories of Canada, For instance, the Model Law has been adopted in the Ontario International Commercial Arbitration Act (ICCA).

Under article 34 of the Model Law, the court of the seat of the arbitration may set aside the award of the arbitral tribunal in certain circumstances. In Popack v. Lipszyc, the Ontario Superior Court of Justice recently dealt with two questions arising under the Model Law.

First, can the parties contract out of the Model Law, and in particular article 34?

Second, does the court have a discretion to not set aside the award even if a breach of the Model Law has occurred? The court answered No to the first question and Yes to the second question, and in the exercise of its discretion declined to set aside the award.

In answering these questions, the court did not rely on any prior decisions as authoritative, so its decision appears to be a matter of first impression. Moreover, the decision on the first question appears to be contrary to another decision of the Ontario Superior Court in Noble China Inc. v. Lei (1998), 42 O.R. (3d) 69 (Ont. Gen. Div. [Commercial List]). For this reason, it is hoped that the first question will soon be considered by appellate courts in Canada.

The issues raised in this case are important due to the increasing application of the UNCITRAL Model Law in today’s shrinking commercial world. More and more construction, procurement and other business contracts involve parties from different countries. Because they do, those contracts are governed by the Model Law in those jurisdictions like Canada, which has adopted that Law. Accordingly, the parties to those contracts and their advisors must understand how the Model Law applies to arbitration under those contracts.

Background

The dispute arose between two businessmen, Mr. Popack and Mr. Lipszyc, one from Toronto and one from New York and their respective companies. Their arbitration agreement referred any dispute between them to a Rabbinical Court in New York. That Rabbinical Court, and in particular a Rabbi Schwei, dealt with the dispute for a while. Then, as a result of various events, the parties agreed that the dispute would be dealt with by a second Rabbinical Court in New York (the Arbitral Tribunal).

The arbitral agreement under which the second Rabbinical court was appointed stated that: the arbitrators did not need to explain to anyone the reasons for their decision; the decision of the Arbitral Tribunal was not open for appeal either in any religious court or any secular court; and the arbitrators had jurisdiction regarding disputes after the award including motions due to “judicial error, new evidence, etc., … to the extent permitted by law.”

The arbitral hearing commenced in January 2011 and continued intermittently until March of 2013.  The proceedings were not recorded and no transcript of the evidence was prepared. As a result, there were disputes about what actually transpired during the hearing. The Award issued in September 2013 ordered that $400,000 be paid to the applicants by the respondents. No reasons for decision were given.

After release of the Award, Mr. Popack was told by the Arbitral Tribunal that it had met with Rabbi Schwei on July 8, 2013 regarding the dispute. The parties were not notified that the Arbitral Tribunal was going to, and did, meet with Rabbi Schwei, and they were not present at that meeting. The length of the meeting was estimated at between 1.3 and 4 hours.

Mr. Popack initially acknowledged that he had heard a rumour about the meeting shortly after it took place in July, before the Award was released. The extent to which the possibility of a meeting between the Arbitral Tribunal and Rabbi Schwei had been discussed during the arbitral hearing was a matter of controversy. On July 15, 2013, after the meeting between the Arbitral Tribunal and Rabbi Schwei, Mr. Popack’s representative, Rabbi Fried, wrote to the Arbitral Tribunal. He mentioned a rumour about the meeting with Rabbi Schwei, discussed the potential subject matter of Rabbi Schwei’s testimony at the private meeting and made submissions and provided factual information about that subject matter and said that Rabbi Schwei’s testimony was worthless. The letter also provided suggested language for the hoped-for result of the arbitration and other commentary. Rabbi Fried’s letter did not make an unqualified request for a hearing if the rumour was true and requested was that “if the Rabbinical Court considers Rabbi Schwei’s testimony (which was without our knowledge)” there should be a tribunal hearing about it. Rabbi Fried’s letter was not copied to the other side and there was no response to that letter by the Arbitral Tribunal.

The application to set aside the award was commenced by Mr. Popack and his companies in November 2013, seeking relief as a result of the meeting with Rabbi Schwei. Mr. Lipszyc then contacted the secretary to the Arbitral Tribunal and asked the secretary of the Arbitral Tribunal to write a letter about the matter.

On March 13, 2014, the Arbitral Tribunal issued a letter. Unlike the other written communications from the Arbitral Tribunal, which were in Hebrew, this letter was in English. The applicants submitted that the letter was effectively written to the court. It said, inter alia, the following:

“During the [hearing], in the presence of all parties and counsel, [Mr. Lipszyc] requested from us to meet with [Rabbi Schwei]. We granted his request and no party objected to our decision, or requested the opportunity to be present at the meeting that the Beth Din will schedule with [Rabbi Schwei]. Had any party requested to be present at the meeting with [Rabbi Schwei], we would have granted the parties request…..Although we met with [Rabbi Schwei], we confirm that the ruling and final order we issued would have been the same, even if the Beth Din meeting with [Rabbi Schwei] had not occurred….we received a fax from Rabbi S. Fried (Popack’s Rabbinical advisor) requesting, that if Bais Din will take into consideration any evidence they heard from [Rabbi Schwei], his party (Popack) is requesting a hearing with Bais Din. Accordingly since the meeting with [Rabbi Schwei] didn’t make any change in our ruling, a hearing was unnecessary. The Bais Din proceeded to issue the Final Order.”

In their application, the applicants asserted that the meeting with Rabbi Schwei violated:

Article 34(2)(a)(iv) of the Model Law which permits the court to set aside the arbitral award if the party making the application to the court “was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case”;

Article 34(2)(a)(ii) of the Model Law which permits the court to set aside the award if the applicant to the court “was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case”;

Article 34(2)(b)(ii) of the Model Law which permits the court to set aside the award if it conflicts with the “public policy of this State [in this case, Ontario].”

In support of these assertions the applicants submitted that the arbitral award violated:

Article 18 of the Model Law which requires that ‘[t]he parties shall be treated with equality and each party shall be given a full opportunity of presenting his case”;

Article 24 which stipulates that [t]he parties shall be given sufficient advance notice of any hearing and of any meeting of the arbitral tribunal for the purposes of inspection of goods, other property or documents, and that “[a]ll statements, documents or other information supplied to the arbitral tribunal by one party shall be communicated to the other party” and that “any expert report or evidentiary document on which the arbitral tribunal may rely in making its decision shall be communicated to the parties.”

Decision of the Ontario Superior Court

Justice Matheson of the Ontario Superior Court of Justice stated that there was no issue that the Arbitral Tribunal was an international tribunal seated in Ontario under the ICAA. She held that “ICAA and Model Law recognize the autonomy of parties to craft an adjudicative process of their own choosing, subject to limited exceptions.” She also held that “[b]road deference and respect must be accorded to decisions made by arbitral tribunals pursuant to the Model Law” relying on Corporacion Transnacional de Inversiones S.A. de C.V. v. STET International S.p.A., [1999] O.J. No. 3573 (Ont. S.C.J. [Commercial List]) at para. 22, aff’d [2000] O.J. No. 3408 (Ont. C.A.).

There were two issues to be decided:

  1. whether the parties had contracted out of Article 34 of the ICAA, precluding all access to the courts; and
  2. whether the meeting of the Arbitral Tribunal with Rabbi Schwei justified setting aside the award on any of the grounds submitted by the applicants.

Contracting out of Article 34

Justice Matheson held that the parties had not effectively contracted out of right to seek an order setting aside the arbitral award, provided by Article 34 of the Model Law. The decision in Noble was not authority for the proposition that the parties may contract out of Article 34. Justice Matheson’s view was that, while the Court in Noble China did state, in obiter dicta, that Article 34 is not mandatory, the findings in the rest of its decision were “all different ways of showing that parties cannot effectively contract out of Article 34 for all purposes.” Justice Matheson noted that the respondents conceded that “there are mandatory provisions in the ICAA, two of which are relied upon here. If parties can contract out of Article 34 for all purposes, there would be no jurisdiction for a court to set aside an award as a remedy for breach of these admittedly mandatory provisions.”

Justice Matheson found that none of the alleged acts of contracting out of Article 34 had that effect. The provision in the arbitration agreement that the award is not open for appeal in any religious or secular court did not address the parties’ right to seek to have the award set aside. Nor did the parties contract out of Article 34 by agreeing in the arbitration agreement’s that the Arbitral Tribunal had jurisdiction to hear disputes about interpretation of the award, compliance of the parties or re-argument due to claims of a judicial error or new evidence. None of those matters were raised in the present case. Nor was the application to set aside the arbitral award barred by the provision in the arbitration agreement that precluded a “claim” in court without permission of the Rabbinical Court, which had not been obtained. Read in the context of the ICAA, a “claim” was a substantive claim, not a claim to challenge and set aside the award.

Justice Matheson concluded this part of her reason by saying the following:

“I therefore conclude that the Arbitration Agreement does not exclude the provisions in Article 34 that the applicants seek to invoke. However, even if it purported to do so, it would not be effective in regard to either the mandatory provisions of the ICAA or any conflict with public policy….” (underlining added)

Accordingly, Justice Matheson seems to have held that, while she performed an analysis of whether the arbitration agreement had excluded the operation of Article 34, that analysis was unnecessary because the parties were incapable of contracting out of Article 34, at least so far as the enforcement of the “mandatory” provisions of ICCA and public policy.

Discretion to Refuse a Remedy

Justice Matheson found that the meeting by the Arbitral Tribunal with Rabbi Schwei “was a breach of the Arbitration Agreement and satisfies the prerequisites for potential relief under Article 34(2)(a)(iv).” Nevertheless, she held that the court’s power to set aside the award should not be exercised in this case for a number of reasons:

  1. Seriousness of the breach: The seriousness of the breach of the Model law or public policy was relevant to the exercise of the court’s discretion to set aside the award. In Justice Matheson’s view, the Arbitral Tribunal had not gone off on a frolic of its own to interview a witness. Rabbi Schwei was not a third party witness but a former adjudicator. Both parties had discussed the arbitral tribunal and the possibility of interviewing Rabbi Schwei and neither party had opposed that step being taken.
  1. Parties’ procedural choices: The parties disagreed about the discussions they had had with the Arbitral Tribunal about the interviewing of Rabbi Schwei, and about the extent to which the Arbitral Tribunal may have been led to believe that the parties consented to such an interview. However, the parties had chosen to have no transcript of the proceedings. Justice Matheson held that, while the absence of a transcript “does not excuse the failure to comply with the notice obligations, the circumstances of the request could have left the Arbitral Tribunal with the impression that they were empowered to proceed as they did.” In addition, the parties had decided not to require the Arbitral Tribunal to issue reasons for decision. As a result, Justice Matheson said that “when considering whether the evidence of Rabbi Schwei might have caused some prejudice to the applicants, I must observe that these parties agreed to arbitration without either a transcript or reasons for decision. While they were free to do so, both sides must accept the consequence that I have little information upon which to conclude that Rabbi Schwei’s evidence might have prejudiced either side. I accept the possibility of prejudice for both sides, but cannot practically go further.”
  1. Serious prejudice if the Award was set aside: Justice Matheson considered two sorts of prejudice that would arise if the award was set aside. First, the hearing would have to be held again, and eight weeks of hearing and the very expensive costs of that hearing wold be thrown away. Justice Matheson did not consider that type of prejudice to be “especially significant.” Second, a material witness – Mr. Popack’s father – had died and there was no record of his evidence. Justice Matheson considered that this fact amounted to incurable prejudice.
  1. Applicants’ own procedural conduct: Justice Matheson referred to the fact that, after the rumour about the meeting with Rabbi Schwei, Rabbi Fried’s letter to the Arbitral Tribunal only made a qualified request for a hearing “if” the Arbitral Tribunal was going to consider the evidence they had received. As well, Justice Matheson noted that “Rabbi Fried’s letter made ex parte submissions to the Arbitral Tribunal about matters relating to Rabbi Schwei and the arbitration, which also raises fairness issues.” While she ruled that Rabbi Fried’s letter did not disentitle the applicants to relief, “it augurs against granting the application.”
  1. Evidence from the Arbitral Tribunal: Justice Matheson accepted the letter from the Arbitral Tribunal as evidence, stating that she had “taken the potential frailties of this communication into account in exercising my discretion.” At the very least, the letter made it evident that there was no point in referring the dispute back to the Tribunal as the applicants requested.

Taking those factors into consideration, Justice Matheson concluded as follows:

“The breach by the Arbitral Tribunal, although significant, must be weighed against the other relevant factors discussed above including the actual prejudice that will result if the Award is set aside. Taking everything into consideration in the exercise of my discretion, I conclude that this is not an appropriate case to set aside the Award.”

Discussion

There are many aspects of this interesting decision to be discussed. Two issues will be addressed in this article.

Contracting out of the Model Law

One important issue is whether the parties to an international commercial arbitration can opt out of the provisions of the Model law. As she set out the facts and her initial discussion of the issues, Justice Matheson appears to contemplate that the parties can do so, because she undertakes an analysis of the arbitration agreement and the parties conduct, and then concludes that the parties did not agree to waive the provisions of the Model Law. But then at the end of this part of her decision, she appears to conclude that the parties cannot contract out of the “mandatory provisions” of the Model Law, and the “public policy”. She does not define which articles of the Model Law she is referring to. But she appears to clearly include Article 34 within those non-waivable provisions, on the sensible ground that if Article 34 could be waived then there would be no remedy for the breach of the other provisions of the Model Law.

With respect to Justice Matheson, the decision by Justice Lax In Re Noble China does appear to have directly held that the parties can contract out of the Model law, and in particular Article 34 of that Law. In her decision, Justice Lax said the following:

“In summary, Article 34 is not a mandatory provision of the Model Law. Parties may therefore agree to exclude any rights they may otherwise have to apply to set aside an award under this Article. They may do so as long as their agreement does not conflict with a mandatory provision of the Model Law. The arbitration agreement here does not conflict with any mandatory provision of the Model Law, nor does it confer powers on the arbitration tribunal which is in conflict with Ontario public policy. Noble’s motion to dismiss or permanently stay the Lei application is therefore granted.

Accordingly, it was on the very basis that the parties could and did contract out of the Model Law, and in particular Article 34, that Justice Lax dismissed the motion to set aside the award.

With these two decisions being in apparent conflict on this important issue, it is to be hoped that an appellate court will review this issue soon. My own view is that the better argument is that the parties to an international commercial arbitration cannot contract out of the provisions of the Model Law, other than certain specific articles, which the Model law states are waivable by the parties. The following are my reasons for this view.

The first is that the Model Law does expressly state in numerous articles that the parties can otherwise agree. Thus, Articles 3(1), 10(1), 11(2), 13(1), 17, 19(1), 21, 23(2), 24(1), 25, 28(1)-(3), 29, 31(2), 33(1). 33(1)(b) and 33(32) expressly state that the Article applies “unless the parties agree otherwise” or that the “parties are free to agree upon” other provisions, or words to the same effect. Article 4 refers to ‘‘a provision of this Law from which the parties may derogate”, and requires a party to make a timely complaint about the non-compliance, failing which that party is deemed to waive the objection. The words ‘‘unless the parties agree otherwise”, “the parties are free to agree” and “may derogate” imply that the parties may not agree otherwise or derogate from other provisions. Having stated in about 18 separate Article and sub-Articles that the parties may “otherwise agree” or are “free to agree upon” other provisions, it seems that the drafters thought they had stated which Articles and sub-Articles were non-mandatory and had thereby delineated between the mandatory and non-mandatory sections, and most unlikely they would have intended that the parties could contract out of the other provisions. If that is not so, and if the line between the two is not drawn by reference to those Articles and sub-Articles, then no clear line between the mandatory and non-mandatory Articles is apparent.

Second, a comparison to the Ontario domestic Arbitration Act, 1991 (AA) is in order. Section 3 of that Act specifically lists the section of the Act that the parties cannot waive. Section 46, which provides that the parties can apply to court to set aside the arbitral award, is one of the sections that is listed. So the parties cannot contract out of section 46 of the domestic arbitral statute – comparable to Article 34 of the Model Law. Both the AA and ICAA deal with the same subject matter – arbitration – and it seems unlikely that the Ontario legislature would provide that the parties cannot contract out of access to the courts to challenge domestic arbitration awards, but can do so in relation to international commercial arbitration awards. Similarly, it seems unlikely that having specified the provisions of the domestic statute that the parties cannot contract out of, the same legislature would intend that the parties can contract out any provisions of ICCA without that ever being mentioned.

In Noble China, Justice Lax examined these two arguments and arrived at a contrary view. In her view, the legislature could have stated in ICCA that certain articles were mandatory as it had done in the domestic Act, but did not do so. The failure of either the Model Law or ICCA to state that Article 34 was mandatory was sufficient to conclude that it was not mandatory. She rejected the argument that the words “unless otherwise agreed by the parties” or “the parties are free to agree” in some Articles meant that the other Articles were mandatory. In her view, to accept that argument would be to:

“ignore the Commentary to which recourse may be had as an aid in interpretation. It makes clear that the ‘Magna Carta’ of the Model Law and its most important provision is Article 19. By it, the parties make their own agreement, constrained only by the mandatory provisions of the Model Law which are listed in the Commentary and which each contain explicit mandatory language. This, in my view, is the structure of the Model Law and the approach to be taken in its interpretation.”

Justice Lax concluded her analysis of Article 34 as follows:

 “As can be seen, Article 34 does not contain any of the familiar mandatory language…… Lei argues that the requirement of a full opportunity to present one’s case and equality of treatment are mandatory provisions of the Model Law under Article 18 and that violation of them constitute grounds for setting aside an award. I accept this. Lei further argues that since the parties may not derogate from those fundamental principles in an arbitration agreement, it necessarily follows that they may not derogate from the only means under the Model Law for enforcing those principles. I accept the first part of this proposition, but I do not accept the second….In this case, the arbitration agreement does not contain a waiver of the right to resist recognition and enforcement of the award as did the agreement in Food Services. However, there is waiver of the right to bring an application to set aside the award. In my opinion, the court should give effect to this. This is consistent with the philosophy and structure of the Model Law, indeed with its ‘Magna Carta’. The parties make their own agreements, so long as they do not derogate from its mandatory provisions. Article 34 is not such a provision.”

Third, the Model Law was prepared for adoption by the statute law, and enforced by the courts, of countries around the world. It seems likely that the drafters intended that the Model Law would be uniformly enforced in every country which adopted the Law since uniformity of application is the basis for one State being willing to enforce awards made in another State. It seems very unlikely that the drafters intended to leave open the possibility that the courts in one country could hold that the parties can contract out of the Model Law while the courts of another country could hold that the parties cannot, while the courts in a further country could hold that the parties are able to contract out of some provisions but not others. But that might be the result if the courts of a signatory country held that the provisions of the contract are waivable, since there is no court with world-wide jurisdiction to ensure that only one result is the right one. Only if the Model law is interpreted to mean that its provisions cannot be waived or amended, except where that is expressly stated in the Law, can uniformity of application between all signatory states be accomplished.

Fourth, in common law jurisdictions at least, prohibiting access to the courts is contrary to public policy. And as Justice Matheson noted, if Article 34 could be waived, then all of the other provisions of the Model Law could not be enforced. However, this is an argument that Justice Lax in Noble China implicitly rejected.

While none of these points, except the fourth, were referred to by Justice Matheson, she did conclude that the parties to an international commercial arbitration agreement have “the autonomy …to craft an adjudicative process of their own choosing, subject to limited exceptions”, and that Article 34 fell within the mandatory exceptions. However, it is submitted that the better way to state this proposition is the other way around: the Model Law is mandatory subject to approximately 18 situations in which the parties may otherwise agree.

But whether this proposition is a correct statement of the law must, in view of the apparent conflict between the Noble China and Popack decisions, await the decision of an appellate court. The issue of whether one can contract out of the Model Law is obviously of great importance to international commercial arbitrations. It may also impact the acceptability of Ontario as a place for those arbitrations to be held.

In this latter regard, those interested in how contracting out of the Model law has been dealt with in other countries may wish to examine, through Google, the history of Section 21 of the Australian International Arbitration Act. The following is what I understand to be the history of that section. Up to July 6, 2010, Section 21 of that Act apparently allowed the parties to opt out of the Model Law. Then, case law and controversy developed about the meaning and effect of that section and the impact of the section on the acceptability of Australia as a place for international commercial arbitrations. In the International Arbitration Amendment Act 2010, section 21 was amended to provide that if the Model Law applies to an arbitration, then the law of a State or Territory does not apply to the arbitration. I understand that the amended section effectively forbids contracting out of the Model Law. That amended section is similar, for instance, to section 2(b) of the Ontario Arbitration Act, 1991 which states that that Act applies to an arbitration under an arbitration agreement unless ICCA applies to that arbitration.

Discretion To Refuse A Remedy

Justice Matheson’s decision provides a useful checklist of some factors that are relevant to the exercise of the court’s discretion to set aside an arbitral award. Some of these factors may be controversial – such as receiving the letter from the Arbitral Tribunal – and others may be out of the parties’ control – such as the seriousness of the breach of the arbitral agreement, Model Law or rules of natural justice.

But the procedural choices made by the parties are very much in their control. And Justice Matheson’s treatment of these choices is very interesting. In effect, she held that if the parties choose not to record the proceedings and choose not to have the arbitral tribunal deliver a reasoned decision, then they are forcefully stating that the arbitral process is final, unless there is something egregious that occurs during the arbitration. And that is because, by their choices, the parties are depriving a reviewing court of elementary tools to judge the fairness and correctness of the process and the award, and are ensuring that the evidence is not preserved for use in a re-hearing. By their choices, they have demonstrated that they are really trusting the arbitral tribunal to arrive at the right result.

Often, for the sake of expedition and expense, the parties to an arbitration may do without a transcript of the evidence. Sometimes but infrequently, they may do without a reasoned award. But when deciding to opt out of these elementary protections for procedural fairness and substantive correctness, the parties should expect a less welcome reception from the court if they later challenge the award.

See Heintzman and Goldsmith on Canadian Building Contracts, 5th ed., chapter 11, parts 3(d), 6 and 11(b).

Popack v. Lipszyc, 2015 CarswellOnt 8001, 2015 ONSC 3460

Arbitration – International Commercial Arbitration – review of arbitral award – contracting out of the Model Law – discretion to set aside an arbitral award

Thomas G.Heintzman O.C., Q.C., FCIArb                           April 24, 2016

www.heintzmanadr.com

www.constructionlawcanada.com

This article contains Mr. Heintzman’s personal views and does not constitute legal advice. For legal advice, legal counsel should be consulted.

 

Sattva Limits The Court’s Power To Review Arbitral Award Relating To The Exercise Of An Option; B.C. Court of Appeal

The courts of British Columbia have recently wrestled with the question whether they can review the award of an arbitrator dealing with the exercise of an option. In Urban Communications Inc. v. BCNET Networking Society, the arbitrator and a single judge of the B.C. Supreme Court arrived at diametrically opposite conclusions as to whether the option had been validly exercised. For this reason the judge of the B.C. Supreme Court set aside the arbitrator’s decision.

However, relying on the recent decision of the Supreme Court of Canada in Sattva Capital Corp. v. Creston Moly Corp. [2014] 2 S.C.R. 633, the B.C. Court of Appeal held that the review of the arbitrator’s decision involved matters of both fact and law, and not just matters of law. Since the B.C. Arbitration Act requires that that there be an issue of law before an appeal from an arbitrator’s award may be allowed, the Court of Appeal held that no appeal lay from the arbitrator’s decision in this case. Accordingly, the Court of Appeal set aside the decision of the judge of the B.C. Supreme Court and restored the arbitrator’s decision.

While the logic of the Court of Appeal’s decision is apparent, the result is that the courts did not deal with some fundamental issues relating to the exercise of options. The Urban decision may be a poster child for both sides of the debate about the wisdom of the restrictive appeal regime introduced by Sattva. Those in favour of this regime will see the Urban decision as a demonstration that courts should stay out of the matter if the arbitrator has made a factual or legal determination. Those in favour of more court review of arbitral awards will see the Urban decision as an impediment to the determination of fundamental legal issues by the court system and an interference with the development of the common law.

Background

Section 31 of the Arbitration Act of British Columbia permits an appeal to a judge of the B.C. Supreme Court if a question of law is involved, or the parties consent to the appeal.

Under an agreement made in 2001, Urban leased fibre optic strands to BCNET for a ten-year period. The agreement contained an option to renew “exercisable upon at least six (6) months written notice by [BCNET] to [Urban]. The consideration to be paid for the renewal term will be the sum of $1.00, and other than the consideration to be paid, such renewal will be on the same terms and conditions as this Agreement. …” The Agreement required that any disagreement or dispute between the parties be determined by arbitration.

In July 2011, counsel for BCNET wrote to Urban, stating inter alia, the following;

“Pursuant to section 4.1 and 4.2 of the [Agreement], BCNET hereby exercises its option to renew the [Agreement] and its IRU rights with respect to the IRU Fibres, including all Access Cables, New Segments and New Fibre Builds constructed or commissioned pursuant to the [Agreement]…., BCNET also hereby request that Urban waive the six months’ notice requirement set out in section 4.1 and accept the renewal effective July 23, 2011….

We trust that you will find the above proposal acceptable and ask that you indicate Urban’s assent by signing on the signature line provided below. Upon receiving your assent, we will tender the necessary consideration in accordance with section 4.1 of the [Agreement].”

BCNET did not include payment of the $1.00 renewal fee with this letter. Urban did not return the requested written assent sought in the letter. In August 2012, Urban wrote to BCNET advising that the July 18, 2011 letter did not constitute a valid exercise of the option to renew and that the renewal period for Phases one and two had expired. BCNET then replied, stating that, in its view, the option to renew had been properly exercised as the agreement was silent on when the $1.00 renewal fee had to be paid and did not require its payment as a condition of the renewal. BCNET enclosed a cheque for $1.00, which Urban rejected.

In September 2012, by Notice of Arbitration BCNET applied for a declaration that it had validly exercised the renewal option under the Agreement. The hearing commenced in early October 2012.

In November 2012, BCNET sent another letter to Urban purporting to exercise its option to renew. BCNET’s position was that it had exercised the option in its July 2011 letter, but had decided to exercise the option again out of an abundance of caution.

The arbitrator issued his award on January 3, 2013, upholding BCNET’s position that the option had been properly exercised. Urban sought leave to appeal to the British Columbia Supreme Court. On all grounds, the judge of the B.C. Supreme Court held that the option had not been properly exercised, allowed the appeal and set aside the award of the arbitrator.

Issues In The Arbitration And The Appeal To The B.C. Supreme Court

The only issue in the arbitration and the appeal was whether the option in the agreement had been properly exercised. However, there were four sub-issues upon which the arbitrator and the B.C. Supreme Court disagreed.

  1. Did BCNET exercise the option conditionally? If so, is a conditional exercise an invalid exercise of an option?

Urban had contended that the letter was consistent only with a conditional exercise (or qualified acceptance) of the option as it contained a proposed modification of the agreement and was, therefore, effectively a counter-offer. The arbitrator examined the evidence and concluded that by its July 2011 letter, BCNET had validly exercised the renewal option. He held that the first part of the letter was “a perfectly clear exercise of the option” and that any proposed modification of the option was mentioned in the letter only after the making of a new bilateral contract by the exercise of the option.

The application judge held that a qualified acceptance of an offer constitutes a counter-offer. The judge’s reading of the July 2011 letter was that it sought to amend the option and was not unconditional or absolute. Accordingly, the letter was a qualified acceptance of the option that constituted a counter-offer. The judge therefore held that the July 2011 letter was an ineffective exercise of, and extinguished, the option.

  1. Did BCNET’s failure to enclose $1.00 with its July 2011 letter invalidate its exercise of the option?

The arbitrator held that it was not necessary for BCNET to enclose a $1.00 payment for the renewal fee because: (i) the original grant of the option was supported by ample consideration; and (ii) a valid exercise of the option included an obligation by Urban to give BCNET the use of the fibres and an obligation by BCNET to pay money to Urban for their maintenance. Therefore, the $1.00 consideration was only a nominal rent payment for the extended term and its non-payment did not invalidate the exercise of the option.

The judge concluded that the plain and ordinary reading of the agreement required $1.00 to exercise the renewal option. He held that the $1.00 payment had to be tendered with the purported exercise of the option. Otherwise, an indeterminate date would lead to uncertainly and make no commercial sense.

  1. Was Urban estopped from asserting that the option was not validly exercised?

The arbitrator held that, if BCNET had defectively exercised its option under the Agreement, Urban was estopped from relying on those defects because: (i) it knew from the 2011 letter that BCNET intended to exercise the option; and (ii) knowing this intention, Urban chose to remain silent in the hope that the alleged defects would not come to BCNET’s attention until after the option expired.

The application judge held that, as between the two commercial parties, there was no legal obligation on Urban to advise BCNET that its purported exercise of the option was defective. Accordingly, Urban was not estopped from asserting the invalidity of the July 2011 exercise of the option.

  1. If BCNET had defectively exercised the option in July 2011, did that preclude BCNET from thereafter exercising the option, so that the purported exercise of the option in November 2012 was invalid?

The arbitrator held that, even if was not validly accepted in July 2011, the option remained a standing offer and could not be withdrawn, and was still open for acceptance in November 2012. He held that an optionor is bound by its option agreement and could only avoid its obligations under the option contract if there were legal or factual grounds for it to avoid the option contract itself, which there were not.

The application judge held that, as a result of his finding that the invalid exercise of the option in July 2011 had extinguished the option, the option could not be accepted by BCNET in November 2012.

Decision of the B.C. Court of Appeal

The B.C. Court of Appeal only felt it was necessary to deal with the first issue. In commenting on this part of the arbitrator’s decision, the B.C. Court of Appeal said:

“The arbitrator was of the view that the words of the contractual documents offered more than one potential meaning. He applied the legal principles on contractual interpretation…to determine the parties’ objective intention with respect to the requirements in Article 4.1 of the Agreement, and then to determine the objective intention of BCNET in its July 18, 2011 letter. He considered the objective meaning of the words of these documents in the context in which they were made and all of the surrounding circumstances. Based on his application of the legal principles for contractual interpretation and his findings of fact from the evidence, he concluded that: (i) BCNET’s July 18, 2011 letter was a clear unconditional notice of its intention to exercise the renewal option over all seven Phases, which created a new bilateral contract between the parties; and (ii) only thereafter did BCNET propose to modify that contract by having all of the renewal terms run from the same date. Sattva mandates that these findings must be accorded deference and, absent an extricable error of law of the kind identified in para. 53 of Sattva, are not reviewable under s. 31 of the Act….”

The B.C. Court of Appeal concluded as follows:

“….the arbitrator’s finding that BCNET had unconditionally exercised its option under the Agreement ends the dispute. The arbitrator’s interpretation of the Agreement and the July 18, 2011 letter was open to him to make. His interpretation of those contractual documents does not raise a pure question of law and therefore is not reviewable. It also renders moot the remaining issues raised by Urban….(underlining added)

The court also said that, even under the pre-Sattva regime, leave to appeal the arbitrator’s decision should not have been granted:

“There was no consensus between the parties on the meaning of the words in the contractual documents. The arbitrator had to determine the true meaning of the words in the context and surrounding circumstances in which they were written. This engaged questions of mixed fact and law, which are not reviewable under s. 31(1) of the Act.”

Discussion

There can be two views of this decision, depending on whether one is in favour of, or against, the supervision of arbitral awards by the courts. Those who are against such supervision, and applaud the decision of the Supreme Court of Canada in Sattva, will applaud this decision as well. Arbitrators should be left to decide the meaning of contracts and to interpret letters between the parties exercising rights under those contracts and courts should not prolong the process by examining into further legal issues when issues of contract interpretation and fact have been decided, rightly or wrongly, by the arbitral tribunal.

Others will be concerned that the absence of court supervision will mean that the common law will not develop as it has in the past. Here, an arbitrator and superior court judge disagreed on some fundamental legal principles relating to the exercise of options. It is not healthy for the law to be uncertain and for fundamental legal principles to be controversial. The role of the courts, and in particular appellate courts, is to clarify and develop the law, and not to cut off that process.

Whatever one’s view of this issue is, the first view is now the law in Canada. As a result, the real supervision will be by appellate courts over the trial division, not by the trial division over arbitrators. The supervision by the appellate court depends upon whether, in the words from Sattva, there is or is not an “extricable question of law from within what was initially characterized as a question of mixed fact and law.” In the present case, the application judge held that there was; the Court of Appeal held that there was not.

On this issue, the B.C. Court of Appeal did not grant any apparent deference to the application judge’s decision, despite his express finding that there was an “extricable question of law” to be determined. On its reading of the arbitral award, the Court of Appeal simply held that “Urban cannot establish a pure question of law arising from the arbitrator’s interpretation of Article 4.1 of the Agreement and the July 18, 2011 letter.”

Contrast this decision with the B.C. Court of Appeal’s decision in Teal Cedar Products Ltd. v. British Columbia, 2015 BCCA 263, 2015 CarswellBC 1550. I reviewed that decision in my article dated July 7, 2015. In that case the B.C. Supreme Court declined to set aside the decision of an arbitral tribunal because that decision involved issues of mixed fact and law, applying Sattva. Then, the B.C. Court of Appeal reversed that decision, holding that the arbitrator’s interpretation of the applicable statute raised an “extricable question of law.”

It is not clear from these decisions how one is to identify an “extricable question of law”. In these decisions, the B.C. Court of Appeal did not identify the principle to apply in this exercise. Hopefully, appellate courts in Canada will develop those principles in the future. Otherwise, an application judge’s decision on this question will always be open to further appeal.

See Heintzman and Goldsmith on Canadian Building Contracts, 5th ed. chapter 11, part 11(a)

Urban Communications Inc. v. BCNET Networking Society, [2016] 2 W.W.R. 298, 386 D.L.R. (4th) 284, 2015 CarswellBC 1785

Arbitration – appeal of arbitral award – extricable question of law – options – estoppel – consideration

Thomas G. Heintzman O.C., Q.C., FCIArb                                                        May 1, 2016

www.heintzmanadr.com

www.constructionlawcanada.com

This article contains Mr. Heintzman’s personal views and does not constitute legal advice. For legal advice, legal counsel should be consulted.

Is The Commencement Of An Arbitration Claim Also The Commencement Of An Arbitration Counterclaim?

In a recent English decision, the court held that the commencement of an arbitration by the claimant could also amounted to the commencement of the arbitration of any counterclaim. In Glencore International AG v (1) PT Tera Logistic Indonesia (2) PT Arpeni Pra, the English court held that if the notice given by the claimant, and the appointment of an arbitrator by the respondent, refer to “claims” and “all disputes” then the notice and appointment are sufficient, under the English Arbitration Act, 1990, to amount to the commencement of any counterclaim arising from the same facts and which effectively asserts a claim which can be brought into the balance of accounts between the parties.

This decision is obviously of considerable importance for many reasons, and especially limitation purposes. If this decision applies, then the respondent in the arbitration does not have to serve its own notice of arbitration in respect of its counterclaim and may, in effect, shelter under the claimant’s notice, if the counterclaim can be brought into account in respect of the claim being made by the arbitral claimant.

Would the same decision be made by a Canadian court?

The English Decision

The claims arose under a shipping contract. Two arbitrations were commenced. In the first arbitration, the Owners gave notice in writing that they commenced “arbitration proceedings against you in respect of their claims under this Contract”, appointed an arbitrator and required Glencore to appoint an arbitrator. Glencore responded by appointing a second arbitrator “in relation to all disputes arising under the [contract]”. (underlining added)

In the second arbitration, the Owners gave notice in writing that they commenced “arbitration proceedings against you in respect of claims under this Contract”, appointed an arbitrator, and required Glencore to appoint an arbitrator. Glencore responded by appointing a second arbitrator “in relation to all disputes arising under the [contract]”. In due course in each arbitration, the two appointees then appointed a third arbitrator. (underlining added)

By the time Glencore served its defence and counterclaim submissions in the arbitrations, the limitation period for claims under the contracts had expired. Two members of the arbitral tribunal found that the counterclaims were time-barred. The third member of the tribunal dissented, holding that the notices of commencement of arbitration and the appointments of arbitrators included both claims and counterclaims.

The English decision was based upon section 14(3)-(5) of the English Arbitration Act, 1990 which states as follows:

(3) Where the arbitrator is named or designated in the arbitration agreement, arbitral proceedings are commenced in respect of a matter when one party serves on the other party or parties a notice in writing requiring him or them to submit that matter to the person so named or designated.

(4) Where the arbitrator or arbitrators are to be appointed by the parties, arbitral proceedings are commenced in respect of a matter when one party serves on the other party or parties notice in writing requiring him or them to appoint an arbitrator or to agree to the appointment of an arbitrator in respect of that matter.

(5) Where the arbitrator or arbitrators are to be appointed by a person other than a party to the proceedings, arbitral proceedings are commenced in respect of a matter when one party gives notice in writing to that person requesting him to make the appointment in respect of that matter. (underlining added)

Relying on the underlined words, the English court held that the claimant’s notice of arbitration and the respondent’s appointment of arbitrator, referring to “claims” and to “all disputes arising under the contract,” stopped the running of time in respect of the counterclaim for the purposes of s 14(4) of the English Act if the claim and counterclaim arise from a single set of facts which effectively create a ‘balance of accounts’ between the parties. The judge did not deal with the circumstances which would arise in respect of other counterclaims and whether, and in what circumstances, the respondent must issue its own notice of arbitration. The judge held as follows:

“In my judgment the reference in the notices to “claims” and to “all disputes arising under the contract” had the effect of referring counterclaims for MV Demurrage, and not just claims for FC Detention, to the arbitrations. The context is one of a contract under which delay was capable of giving rise to money obligations on either side of an account, with a net sum falling for payment. The party commencing the arbitration is in effect asking for an account and asserting that the balance is in its favour. It is further commercially unlikely that the parties would contemplate that MV Demurrage and FC Detention Claims would be separate for the purposes of reference to arbitration, so that only one and not the other would be within a reference unless the parties were more explicit that both were within the reference. The attendant possibility that there could otherwise be separate tribunals reinforces the unlikelihood.“

The specific order that the judge made was as follows:

“In circumstances where a claim and a counterclaim arise from a single set of facts giving rise to a balance of accounts or netting-off under a contract, a reference to “claims” and to “all disputes arising under the contract” in notices of appointment of an arbitrator will ordinarily suffice to interrupt the running of time in respect of the counterclaim for the purposes of s. 14(4) Arbitration Act 1996, and does so in this case.” (underlining added)

The judge specifically declined to decide whether the word `claims` alone would have had the same effect.

The judge in this case was clearly influenced by commercial common sense under a shipping contract. How far this decision applies outside of those circumstances is unclear. But the decision is clearly an important one which will be cited in the future.

Would the same result arise under Canadian arbitration statutes?

In addition to questions about the scope and effect of this English decision, would the logic of this decision apply in Canada?

Arbitration Statutes

Many Canadian provinces have, in whole or in part, adopted the Uniform Arbitration Act (UAA”) promulgated by the Uniform Law Conference of Canada (“ULCC”). The UAA addressed the limitation period applicable to counterclaims in two ways.

  1. Section 23 of that UAA states the various ways in which an arbitration can be commenced. One of the ways that the arbitration may be commenced is set forth in Section 23(1)(a):

A party to an arbitration agreement serves on the other parties notice to appoint or to        participate in the appointment of an arbitrator under the agreement. (underlining added)

Then, section 24 states as follows:

A notice that commences an arbitration without identifying the dispute is deemed to refer to arbitration all disputes that the arbitration agreement entitles the party giving the notice to refer. (underlining added)

The Commentary to this section says that, “The purpose of this is self-explanatory.”

  1. Section 52(1) of the UAA says that the law with respect to limitation periods applies to an arbitration as if the arbitration were an action and a claim made in the arbitration were a cause of action. So presumably, the limitations statute of a province adopting this sub-section applies to a counterclaim in an arbitration.

These sections are adopted in some, but not all, of the provincial arbitration statutes.

Thus, the arbitration statues in Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick and Nova Scotia appear to adopt these provisions from the UAA. The limitation statutes in the other common law provinces do not appear to address these issues.

Article 2892 of the Quebec Civil Code says that cross demands and notices to submit a dispute to arbitration constitute judicial applications, and Article 2882 says that any ground of defence may be asserted after prescription even if it could be asserted as direct action.

There are clear differences between section 23 of the UAA, and in the various provincial limitations statutes which adopt that section, and section 14 of the English statute.

First, the Canadian section refers to the disputes that the “party giving the notice” may refer to arbitration.   This wording would appear to exclude claims that the respondent might refer to arbitration.

Second, the Canadian section says the effect of that section is “deemed” to be so. The English statute refers to “a matter” and “in respect of that matter”.

Limitations Statutes

The provincial limitations statutes are quite different across Canada. To the author’s understanding there are basically three different regimes applicable to limitation periods and counterclaims:

  1. In four provinces, the limitations statutes extend the limitation period for counterclaims if an action is commenced, in certain circumstances relating to the connection of the counterclaim to the main action: British Columbia, Alberta, Manitoba, and Newfoundland and Labrador. This provision reflects section 13(1) of the Uniform Limitations Act (“ULA”) of the ULCC.

2.     The limitations statutes of six provinces and territories do not seem to contain any such extension of the time to commence a counterclaim, and state that the same limitation period which is applicable to actions also applies to counterclaims and set-offs: Nova Scotia, P.E.I., Saskatchewan, Yukon, Northwest Territories and Nunavut. Quebec law appears to adopt the same approach. In Book 8, Prescription, Article 2892 of the Quebec Civil Code says that cross demands (and, as noted above, notices to submit a dispute to arbitration) constitute judicial applications. Article 2882 says that any ground of defence may be asserted after prescription even if it could be asserted as direct action.

3.     In Ontario, the limitation statute does not appear to expressly address this issue so far as counterclaims are concerned. One could infer that, therefore, the limitation period for counterclaims is not extended by the original action.

4.     Presumably, however, the judge-made rule with respect to equitable set-offs (namely that they can be relied upon in the defence and therefore are not caught by the limitations period) would apply in all these cases.

Discussion

The Canadian arbitral and limitation statutes appear to raise a Rubik’s cube of possible results. In the absence of a definitive Canadian decision to discuss, now is not the time to answer questions but to raise them. Here are just a few of them:

1.     Do the words “in respect of a matter” in the English statute, and the words “the party giving the notice to refer” in section 23 of the UAA (and provincial statutes which adopt it) mean that, in Canada under the provincial limitations statues which adopt section 23 of the UAA, the commencement of arbitration is limited to those claims which the claimant can submit to arbitration, and not those which can be raised by counterclaim?

2.     Can the claimant forestall the application of section 23 of the UAA by stating, expressly or by implication, that the arbitral claim does not raise any issue by, or related to, an arbitral counterclaim?

3.     If the claims raised by counterclaim are ones that can be “brought into account” within Glencore decision, why do they not fall within the apparent right of the arbitral respondent to assert an equitable set-off without commencing a counterclaim?

4.     What is the basis or effect of the Glencoe decision?

Does it mean that the respondent’s notice appointing an arbitrator is itself the commencement of a counterclaim if it refers to “all disputes” or words to that effect? If so, that would mean that the words “notice to appoint….an arbitrator” in section 23(1)(a) mean and include the appointment of an arbitrator by the respondent in response to the claimant’s demand for the appointment of an arbitrator.

Does it mean that the provisions of the applicable arbitration statute over-ride the limitations statute, and that, because of the nature of arbitration proceedings, once an arbitration is commenced and arbitrators appointed then the arbitration is commenced for all applicable purposes including counterclaims (as delimited in the Glencoe decision) notwithstanding the limitations statute?

How does that approach conform to, say, those sections of Canadian limitation statutes (such as section 19(2) of the Ontario Limitations Act, 2002) that provide that the limitation period prescribed in the Act applies notwithstanding any other statute?

Or is that approach consistent with a section such as section 52(1) of the UAA, and the provincial sections that follow it, which state that the provisions of the limitations statute that apply to actions also apply to arbitrations?

In other words, is the decision in Glencoe consistent with relationship between arbitral and limitations law established under the UAA?

If the arbitration statute prevails over the limitation statute (in the sense that the commencement of the arbitration and appointment of arbitrators amount to the commencement of all potential proceedings in the arbitration, at least to the extent of “money obligations on either side of an account, with a net sum falling for payment”, to use the words from Glencoe), then at least some of the discussion about the effect of the limitation statues on counterclaims in arbitrations may be irrelevant. To the extent that is not the case, however, then:

5.     In those provinces and territories whose limitation statutes state that the limitation period applies to set-off, does that mean that the reasoning in the Glencoe decision does not apply?

6.     In four provinces, the limitation statutes expressly provide for the extension of the limitation period if the counterclaim is related to the claim in the original action. However, the arbitration legislation in only two of these Provinces (Alberta and Manitoba) provides, as does section 52(1) of the UAA, that the limitation period for arbitrations is the same as those in actions. Does that mean that in the other two provinces (British Columbia, and Newfoundland and Labrador) that the extension of time to commence a counterclaim does not apply to arbitrations?

One can imagine many other permutations or combinations of these statutory provisions. In addition, in those provinces which have not expressly dealt with some of these issues, arriving at a reasoned conclusion may be even more difficult.

What can be said is that parties to arbitrations should be aware of the pitfalls relating to the limitation period. A party wishing to assert a counterclaim in an arbitration notwithstanding a prescription or limitation period, or a party wishing to preclude the assertion of a counterclaim in an arbitration by reason of prescription and limitation period, must be familiar with the provisions of both the arbitral statute and the limitations or prescription statute, and should consider the inter-relation, if any, between the two.

Glencore International AG v (1) PT Tera Logistic Indonesia (2) PT Arpeni Pra [2016] EWHC 82 (Comm)

Arbitration – counterclaim – limitation and prescription periods

Thomas G. Heintzman O.C., Q.C., FCIArb                                                             March 25, 2016  

www.heintzmanadr.com

www.constructionlawcanada.com

 

Can An Arbitral Tribunal Summons The Decision-Makers Of A Public Authority?

When a contract dispute between a public authority and a private party proceeds to arbitration, can the private party inquire into the process or reasoning that led to public authority’s decision in question? For instance, if the public authority decides to terminate a construction contract, or to award a tender to one bidder, can an arbitral tribunal compel the public authority’s decision-makers to testify about their decision-making process?

It might be argued that this sort of inquiry is irrelevant and impermissible because the public authority is making a public law decision for which the publicly released decision is all that is relevant, and the reasons of the decision-makers within the public authority are unknowable; and the arbitral tribunal is there to make the determination as to whether the decision was valid or not, not what the decision-makers within the public authority thought about the matter.

However, in Commission scolaire de Laval v. Syndicat de l’enseignement de la région de Laval the Supreme Court of Canada has just held that the arbitrators may summon the decision-makers within a public authority, and the arbitrator may receive evidence about the process leading to the decision that is relevant to the arbitration. And in its decision, the Supreme Court made strong statements about the inadvisability of any court interfering beforehand in the arbitrator’s role in making these evidentiary rulings.

While the decision was rendered within an employment context, it raises serious issues about the powers of arbitral tribunals to inquire into the motives and the processes of public authorities. Combined with the recent decision of the Supreme Court in Bhasin v. Hrynew, which has mandated the honest performance of contracts, it could very much broaden the powers of arbitral tribunals to look behind the decisions of public authorities relating to the performance of contracts.

Background

B was a vocational training instructor employed by the Laval School Board since 2000. In March 2009, the principal of the school where B worked asked B to submit a declaration concerning his judicial record. As a result of recent amendments to the Quebec Education Act, (EA) a school board was required to “ensure” that “persons who work with minor students and persons who are regularly in contact with minor students . . . have no judicial record relevant to their functions within that . . . board.” If a school board notes that a teacher or a person holding a teaching licence has a record it considers relevant to that person’s functions, it must inform the Minister of Education and the Minister may refuse to renew the teacher’s licence or may suspend or revoke it or attach conditions. That power cannot be exercised, however, if the teacher’s offence is unrelated to his or her employment or if a pardon has been issued to the teacher.

In June 2009, B was summoned to attend a special meeting of the Board’s executive committee. The Supreme Court of Canada said the following about that meeting:

“After hearing B in a “partially in camera meeting” (from which the public was excluded), the executive committee ordered a “totally in camera meeting” (from which the teacher and his representative were excluded) in order to deliberate. Upon completion of these two in camera meetings that lasted a total of 27 minutes, the committee, sitting in public once again, proceeded to adopt resolution No. 238, which terminated B’s employment contract.”

This resolution listed the offences of which B had been convicted, noted [translation] “the provisions of the [EA] concerning judicial records of persons who work with minors” and mentioned the recommendations of the human resources unit and the director general that B’s record was relevant to his functions. The executive committee unanimously decided that “the employment relationship between the teacher [B] and the Board [is] resiliated as of this day on the ground of incapacity”. In the Board’s view, the fact that a teacher has a judicial record that is relevant to his or her functions makes the teacher legally incapable of performing those functions.”

On July 2, 2009, the Union filed a grievance on B’s behalf to contest his dismissal. The collective agreement between the Union and the board stated that a teacher’s employment contract could be terminated “only after thorough deliberations at a meeting of the board’s council of commissioners or executive committee called for that purpose.”

On July 3, 2009, the day after the grievance was filed and four days after the employment relationship was terminated, the National Parole Board granted B a pardon.

The Union’s grievance on behalf of B came to an arbitration hearing in May 2010. The Union summoned three members of the executive committee who had been present for the deliberations in June 2009. The Board objected, arguing that the motives of the members of the committee were irrelevant and that doctrine of deliberative secrecy shielded the members from being asked what had been said in camera. The Union submitted that this testimony would be relevant, admissible and necessary, given that it contested both the procedures and the substantive grounds relating to the termination.

The Lower Decisions

The arbitrator held that Union was entitled to examine the members of the executive committee on what had been said in camera. In order to determine whether the committee’s deliberations had been “thorough” as required by the collective agreement, he held that it was necessary to know their substance, including what information had transmitted orally and in writing in the discussions between the members, as well as any objections that were raised.

The arbitrator held that the doctrine of deliberative secrecy did not preclude him hearing the evidence which the executive committee had heard in camera. The fact that a body deliberated in camera did not necessarily mean that it benefited from deliberative secrecy, and the mere fact that the executive committee had decided unilaterally to sit in camera did not shield its members from scrutiny by a grievance arbitrator. The arbitrator said that he would hear the evidence of the executive committee’s members in camera if he received a request to that effect, to ensure that they would be able to speak as freely as in their deliberations.

Mr. Justice Delorme J. heard a motion for judicial review of the arbitrator’s interlocutory decision. He held that the intentions of members of the executive committee’s decision to terminate B’s contract of employment were irrelevant. He also held that the executive committee’s decision to deliberate in camera had rendered its deliberations confidential.

By a majority, the Quebec Court of Appeal allowed the appeal. The majority held that a decision with respect to employment, and more specifically with respect to dismissal, made by a public body falls under employment law, whether individual or collective, and not under public law. The rule that deliberative motives are irrelevant did not apply. The majority of the Court of Appeal also held that deliberative secrecy did not apply since the executive committee was not an adjudicative body, and the fact that the executive committee decided unilaterally to meet in camera did not shield its members from testifying.

The dissenting judge would have dismissed the appeals. He held that the rule against the admissibility of the motives of public decision-makers applied to the decisions of any public collective decision-maker, whether acting in a private or public capacity, provided that the communicated decision officially expresses the public body’s will.

Decision of the Supreme Court of Canada

The Supreme Court of Canada unanimously dismissed the appeal. The majority and minority of the Supreme Court were divided on which standard of review to apply. That issue is not one that this article will address. On the other issues, the court held as follows:

  1. The rule that the motives of a public decision-maker are irrelevant and “unknowable” (known as the Clearwater principle from a decision of the Supreme Court) applies to a legislative body, or a public body exercising regulatory, policy or purely discretionary powers. But that rule does not apply to any decision of a public authority in a contractual or other private law context.

In this respect, the Supreme Court did not draw a dividing line between employment cases and other cases. Rather, it drew the dividing line between decisions of a legislative, regulatory and pure policy nature, on the one hand, and decisions relating to the assertion of private law rights, on the other. Decision-makers within a public body that was involved in contractual or other private law matters were subject to testifying about their deliberations, if their testimony is relevant.

On this point, the reasons of the Supreme Court are important:

“…it is wrong to say that Clearwater established a rule of relevance that applies to every collective decision made by a decision‑making body by means of an official document regardless of the nature of the decision or of the body making it. Rather, the “unknowable” motives in question are those that led a legislative body to adopt provisions of a legislative nature, that is, to carry out acts of a public nature….[the Clearwater rule] applies to decisions made by a public body when it carries out acts of a public nature. (emphasis added)

In the instant case, even though the Board is a legal person established in the public interest under the EA, it was acting as an employer when it decided to dismiss teacher B by way of a resolution of its executive committee. That decision had an effect on the employment contract between B and the Board and was made in the context of a process provided for in the collective agreement between the parties. It was not a decision of a legislative, regulatory, policy or discretionary nature. Rather, it was made in the context of the very type of contractual relationship that was at issue in Dunsmuir and Wells. In reviewing such a decision, a grievance arbitrator applies the principles of employment law that are applicable to any dismissal. As a result, this case is clearly distinguishable from Clearwater. A rule of relevance based on the public nature of an impugned decision does not apply here.”   (emphasis added)

The Supreme Court also noted the fine line between process, motives and substance in the making of a decision relating to private or contractual rights:

“Furthermore, it is quite hard to distinguish questions concerning the process that led to a decision from questions concerning the motives behind the decision. A single question could be useful for determining both whether the process was lawful and whether the disciplinary sanction satisfies the substantive requirements provided for in the collective agreement and in labour legislation. For example, the question whether the members of the executive committee considered the existence of B’s application for a pardon might be relevant to the assessment of the process followed by the committee. The same question might also be relevant to the assessment of the validity of the committee’s substantive decision.”

Finally, the Supreme Court noted that principles involved should apply equally to the private and public sector if contractual and other private-law rights are in issue. It said:

“In the appellants’ submission, Clearwater would apply not only to public bodies like school boards, but also to Crown corporations, all of which make their decisions known through resolutions adopted collectively by their decision‑making authorities. And the same rule would apply to private corporations that operate in the same way. If that were the case, the makers of a wide range of decisions made collectively would be shielded from ever testifying about their motives or their deliberations, even in cases in which such testimony would be of particular relevance to the dispute. It would not be desirable to attribute such a scope and such effects to the reasons of narrow scope given by Binnie J. in Clearwater.” (emphasis added)

  1. The Supreme Court held that the members of the Board’s executive committee were not protected from testifying by the doctrine of deliberative secrecy. That doctrine only applied to a body exercising an adjudicative function, such as a court, arbitrator or administrative tribunal.   The Board’s executive committee was not performing an adjudicative function. Rather, “it was acting as an employer in the context of a contractual relationship to which the principles of employment law applied.”
  1. The Supreme Court declined to rule on whether the proposed examination of the executive committee members was relevant, for three reasons:

First, the assessment of relevance fell within the exclusive jurisdiction of the arbitrator, and it is “not open to a reviewing court to speculate about the types of questions that could be relevant before the examination has even begun”;

Second, the arbitrator had authority over both the substantive validity of the board’s decision, and the issue of the proper penalty;

Third, the arbitrator had to decide whether the Board had taken “thorough deliberations” as required by the collective agreement.

In concluding, the Supreme Court made two observations that are very relevant to the law of arbitration.

First, the court said that it was inadvisable for a court to review an interlocutory decision of an arbitral tribunal, particularly a decision about the relevance or admissibility of evidence. The court noted that such a review is not suitable to the process:

Finally, it seems to me self‑evident that the nature of arbitration proceedings would be unsuited to an advance assessment of testimony that has not yet been heard. Relevance is established on the basis of the legal framework, the factual context and the circumstances of the particular case: …..Owing to certain features specific to grievance arbitration, the legal framework and factual context often become known only as the proceedings and the examination of witnesses unfold.…..To the above must be added the informal nature of the pleadings that lead to arbitration and the absence of applications with detailed allegations that would be available to a court of law to help it determine what is relevant on the basis of the facts alleged in support of a proceeding. In this context, it would be risky to rule in advance on the relevance of evidence that could depend on what will be revealed in the course of the examination of the employer’s representatives….. Likewise, it would be inappropriate to preclude in advance all questions about the motives behind the dismissal.  (emphasis added)

Second, the court also made the point that there are good policy grounds for disallowing review of the interlocutory decisions of arbitrators, as the present case illustrated:

“In concluding, I must make one final comment. In my humble opinion, it is most unfortunate that, more than six years after filing a grievance with respect to a dismissal, the Union has not yet been able to begin presenting its evidence. The mission of the grievance arbitration system, that is, to provide employers and employees with justice that is accessible, expeditious and effective, has been forgotten. I would note the importance of the sensible rule that, with only a few exceptions, a grievance arbitrator’s interlocutory decision, in particular one concerning evidence and procedure, is not subject to judicial review….The courts of several provinces have taken a similar deferential approach to interlocutory decisions of arbitrators….” (underlining added)

Discussion

This decision of the Supreme Court is important for the law of contracts, construction law and arbitration, and not just for employment law.

For arbitration law, The Supreme Court’s observation will undoubtedly confirm the modern approach to arbitration and the respect which court now give to arbitral awards and in particular the interlocutory decisions of arbitrators.

For contract and construction law, consider the situation in which a public body tenders a contract for the construction of a building. That tender process is governed by the law of contract, and particularly the law applicable to tenders. The public authority’s decision to award the building contract is governed the Supreme Court of Canada’s decision in Ron Engineering, and the many subsequent decision arising from that decision. An important element in the validity of that decision is the fairness of the decision of the public authority’s decision.

Consider also the recent decision of the Supreme Court of Canada in Bhasin v. Hrynew, in which the Supreme Court held that a party to a contract has a duty of honest performance. Whether a public authority has honestly performed the contract may be a serious issue, particularly in the authority’s use or mis-use of the change order regime and the dispute resolution process.

On these and other issues relating to the performance of contracts entered into by public authorities, the Laval School Board decision is a powerful statement. The decisions of public authorities in that context are not legislative, policy or regulatory decisions, but decisions made according to contract and other private law rules. The internal processes leading to those decisions will not be entitled to a blanket privilege against disclosure. The admissibility of evidence from the decision-makers will be determined by an arbitrator, if an arbitration agreement is applicable, and courts should be very reluctant to interfere with that process. The admission of evidence about the decision-making process of the public authority may well be in aid of an allegation of improper purpose or motive, or unfairness.

Commission scolaire de Laval v. Syndicat de l’enseignement de la région de Laval, 2016 SCC 8

Arbitration – Evidentiary rulings by arbitrators –review of interlocutory decisions of arbitrators –Public authorities – Distinction between private law and public law decisions of public authorities

Thomas G. Heintzman O.C.,Q.C., FCIArb                      March 30, 2016                                                                                                                

www.heintzmanadr.com

www.constructionlawcanada.com

An Opt-In “May Arbitrate” Clause Is Enforceable, But Only If Triggered: Privy Council

One of the ongoing issues in Canadian arbitration law is whether an “opt in” arbitration clause is enforceable as a mandatory submission to arbitration. Under such a clause, one party “may” serve a notice of arbitration, and if that party does so, then arbitration shall ensue. Some Canadian court decisions, particularly older ones, held that this sort of clause is a permissive clause, not a mandatory submission to arbitration, and is therefore not enforceable. Other Canadian decisions, particularly the more recent ones, have held that this sort of clause amounts to a mandatory submission to arbitration once one party does elect to serve a notice to arbitrate.

Recently, the Privy Council examined such a clause. In Anzen Limited and others v. Hermes One Limited, the Privy Council held that the clause constituted an enforceable arbitration clause once it was properly triggered by one of the parties. The triggering of the clause did not require the defendant to itself commence arbitration but to make a sufficient election that the dispute was to be arbitrated.

This decision will be useful in interpreting Canadian arbitration clauses in building contracts because they generally use the word “may” and the issue then arises as to whether one party can enforce arbitration against the other.

The Background

The relevant portion of the clause in question read as follows:

“…If a dispute arises out of or relates to this Agreement or its breach (whether contractual or otherwise) and the dispute cannot be settled within twenty (20) business days through negotiation, any Party may submit the dispute to binding arbitration. Such arbitration will be conducted by a sole arbitrator designated by the International Chamber of Commerce (ICC) and will be in accordance with the ICC’s arbitration rules. The arbitration will be held at a neutral site in London, England. The arbitrator will determine issues of arbitrability, including the applicability of any statute of limitation, but may not limit, expand or otherwise modify the terms of the Agreement……” (underlining added)

Hermes commenced court litigation arising from a shareholders’ agreement containing this clause. Anzen did not serve a notice of arbitration. Rather, it brought a motion to stay Hermes’ action, taking the position that if Hermes wished to proceed with its claim, it was obliged to do so by way of arbitration. Hermes’ position was that Anzen was obliged to commence arbitration before Hermes’ claim should be stayed. The court’s below agreed with Hermes and dismissed Anzen’s stay motion. The Privy Council allowed the appeal.

Decision of the Privy Council

The Privy Council said that there were three ways to interpret this clause:

  1. The clause is an exclusive arbitration clause, meaning that the clause is a mandatory arbitration clause and the parties are required to arbitrate. The Privy Council called this Analysis I.
  2. The clause is a permissive arbitration clause, meaning that either party can commence litigation but if the other party wishes to arbitrate, then it must start an arbitration proceeding, in which case the litigation would be stayed by the court. The Privy Council called this Analysis II. This is the approach adopted by the courts below. Because Anzen had not itself commenced arbitration before seeking a stay of the action, those courts dismissed its stay motion.
  3. The clause was a permissive arbitration clause, meaning that either party could commence litigation but if the other party wished to arbitrate, then it did not need to start the arbitration proceeding itself but could request arbitration and then bring a motion to stay the litigation.

The Privy Council held that Alternative III was the proper interpretation of this clause. Alternative I was rejected as being inconsistent with the word “may” and the choice or election inherent in that word. Accordingly, the triggering of the clause required some election by the defendant. The question was, what kind of election: the commencement of an arbitration by the defendant, or some election short of that?

Alternative II was rejected as inconsistent with commercial common sense. It did not make sense for the defendant to be required to commence an arbitration itself when the defendant may not wish to have any proceedings, may have no claim to assert and would have to assert a negative declaration. As long as the defendant made a clear election for arbitration, that should be sufficient to trigger the arbitration clause.

Accordingly, since the defendant had by its conduct made a clear election for arbitration, the Privy Council stayed the action.

Discussion

This decision is a useful one for Canadian construction law because it confirms the line of cases that holding that using the word “may” in an arbitration clause does not mean that the arbitration clause is entirely permissive, so that agreement to arbitrate of both parties is necessary at the time the dispute arises. Indeed, the Privy Council did not even canvas this alternative.

Nor does the word “may” in an arbitration clause give rise to mandatory arbitration clause. The word is too permissive to be given that interpretation.

Rather, the word “may” will usually give rise to what might be called an “opt in” or “elective” arbitration clause, under which either party may elect arbitration. If that party does so on a proper and timely basis, then arbitration is mandatory. In this case, the dispute was whether that proper and timely basis required the defendant to itself start an arbitration. The Privy Council held that it was not.

Interestingly, one of the main decisions upon which the Privy Council relied is the decision of the Ontario Court of Appeal in Canadian National Railway v Lovat Tunnel Equipment Inc. (1999), 174 D.L.R. (4th) 385. In that case, the arbitration clause simply said that “the parties may refer any dispute under this Agreement to arbitration, in accordance with the Arbitration Act of Ontario.” In staying the action, Ontario Court of Appeal held that the words “ the parties may” meant that:

“either party may refer a dispute to binding arbitration and arbitration then becomes mandatory. Failing such an election by one of the parties, the matters in dispute can be resolved in the courts.”

This issue is of importance to building contracts in Canada. Thus, GC 8.2.6 of the CCDC 2 Stipulated Price Contract says that, after certain preliminaries including notice and mediation, “either party may refer the dispute to be finally resolved by arbitration….”

There are Canadian decisions all over the map on this issue. Some have held that the word “may” creates a purely permissive regime obliging neither party to arbitrate. Some hold that it creates a mandatory regime. The more recent decisions seem to adopt the approach in Canadian National Railway v. Lovat Tunnel Equipment Inc. Based upon the present Privy Council decision in Anzen Limited and others v. Hermes One Limited, the latter is the proper interpretation.

See Heintzman and Goldsmith on Canadian Building Contracts, 5th ed. Chapter 11, part 3(c)

Anzen Limited and others v. Hermes One Limited, [2016] UKPC 1

Arbitration – mandatory, permissive and opt-in arbitration – motion to stay  

Thomas G. Heintzman O.C., Q.C.                                               February 20, 2016

www.heintzmanadr.com

www.constructionlawcanada.com

 

 

Arbitral Rules Held To Exclude Right To Appeal Arbitration Award

Parties who select arbitral rules, or the administration facilities of an arbitral institution, may do so because they believe that the rules or institution will provide a fair and efficient administration of the arbitral process. They may not suspect that the rules will affect their right to appeal the award.

However, in Highbury Estates Inc. v. Bre-Ex Ltd., the Ontario Superior Court recently held that by adopting arbitral rules which preclude an appeal, the parties thereby opt out of statutory appeal rights.

The Arbitration Act, 1991 and the National Arbitration Rules

Sub-sections 45(2) and (3) of the Ontario Arbitration Act, 1991 provide for a right of appeal on law, fact and mixed fact and law if the parties agreement so provides. Sub-section 45(1) states that, if the arbitration agreement does not deal with appeals on questions of law, then an appeal on a matter of law may be allowed with leave of the court. Section 3 of the Act permits the parties to contract out of Section 45. By making Ontario the place of the arbitration or by otherwise making the arbitration subject to the Act, the parties agree to these statutory rights of appeal unless they contract out of them.

In the present case, the arbitral agreement stated that National Arbitration Rules applied to the arbitration. Rule 47 of those rules provided that ‘[u]nless otherwise agreed, the award of the Tribunal shall be final and binding and there shall be no appeal’.

In effect, both the Act and the Rules allowed the parties to “otherwise agree.” The Act does so in Section 3. The Rules do in the provision referred to above. In this circumstance, how does one tell if the parties “agreed otherwise” to the Act or to the Rules?

The Decision

The decision of the court was based on the following:

  1. The court referred to a number of prior decisions which dealt with contracting out of section 45 of the Act: Orgaworld Canada Ltd. v. Ottawa (City), 2015 ONSC 318 (Ont. S.C.J.), paras. 48-72, Inforica Inc. v. CGI Information Systems & Management Consultants Inc. (2009), 97 O.R. (3d) 161 (Ont. C.A.), Ontario Hydro v. Dennison Mines Ltd., [1992] O.J. No.2948 (Ont. Gen. Div.), Piazza Family Trust v. Veillette, 2011 ONSC 2820 (Ont. Div. Ct.). The court then concluded that “Where parties have turned their minds to the question and have decided that a decision of the arbitrator will be final and binding, and not subject to appeal on a question of law, s. 45 of the Act operates to exclude recourse to an appeal.”
  1. The court concluded that the language in the arbitration agreement was sufficient to incorporate the arbitral rule excluding appeal, in this case Rule 47 of the National Arbitration Rules. The court held that the decision in Orgaworld, was “unequivocal that language such as was used in Rule 47 and incorporated into the Arbitration Agreement expresses the necessary intention by the parties to forgo a right to appeal, or to seek leave to appeal, on questions of law.”

However, these cases did not deal with arbitration rules which barred an appeal.

In the Orgaworld Canada case, article 25.1(d) of the arbitration agreement itself said that the decision of the arbitrator “shall be final and binding on the parties and there shall be no appeal therefrom.” Based upon this wording, the court held that there was no right of appeal.

In the Inforica case, the question was whether the arbitrator had jurisdiction to order security for costs. The arbitrator held that the ADR Chambers rules had been incorporated into the arbitration agreement and that, therefore the arbitrator had authority to order security for costs as provided in section 8(1)(h) of those rules. The arbitrator also held that he had the authority to order security for costs pursuant to s. 20 of the Act, which provides that an arbitrator “may determine the procedure to be followed in the arbitration”.

The decision of the arbitrator in the Inforica case was upheld by the Ontario Court of Appeal.  The Court of Appeal held that “it was clearly open to the arbitrator to conclude on this record that the arbitration was tak[ing] place with ADR Chambers” and it was, therefore, subject to the ADR Chambers Rules. Accordingly , the Court of Appeal held that the arbitrator’s conclusion that he had jurisdiction to grant security for costs under the ADR Chambers’ rules “was either a finding of fact or a finding close to the fact end of the mixed fact and law spectrum with which a court should be reluctant to interfere.” The decision did not deal with appeals.

The Denison Mines case involved a motion to stay the action to rectify a commercial agreement between Denison Mines and Ontario Hydro. The stay motion was based on the existence of the arbitration agreement in the commercial agreement. The decision did not deal with appeals or arbitration rules. Interestingly, in a later decision in Denison Mines Ltd. v. Ontario Hydro, (2002), 58 O.R. (3d) 26, 2002 CarswellOnt 88 the Ontario Court of Appeal dealt directly with the issue of whether an arbitration agreement barred an application for leave to appeal, and held that it did not when there was nothing expressly in the agreement to that effect.

The Piazza Family Trust case involved a co-tenancy agreement which contained an arbitration clause which stated that “the decision arrived at by the arbitrator shall be final and binding upon the parties and shall not be appealed.” The parties entered into a mediation/arbitration agreement and that agreement provided that “the decision of the Arbitrator is final and binding, with no right of appeal.” The court concluded that “there is no right of appeal of the arbitrator’s decision under section 45 of the Arbitration Act where the arbitration agreement states that the arbitrator’s decision is final and binding with no right of appeal.”

Accordingly, the prior decisions cited in the Highbury Estates decision were not based upon arbitral rules, and did not decide that arbitral rules could bar an appeal. However, the Highbury Estate decision now holds that arbitral rules may have that effect.

Discussion

It is important for parties to realize that by choosing a seat or place for a domestic arbitration, they are making a decision about whether an appeal from the arbitral award is permitted. This issue will only be a consideration in the case of domestic arbitrations since the laws relating to international commercial arbitration (the UNCITRAL Model Law as incorporated into provincial international commercial arbitration statutes in Canada) do not provide for appeals from arbitral awards.

In Canada, the law of the place of a domestic arbitration may or may not allow an appeal on grounds of fact, law or mixed fact and law. For instance, the law of Ontario and some other provinces, which have adopted the Uniform Arbitration Act of the Uniform Law Conference of Canada, allows the parties to agree to an appeal on matters of fact, law and mixed fact and law. The laws of Newfoundland and Quebec do not provide for the parties to so agree.

Based upon the Highbury Estates decision, the parties should realize that by choosing arbitral rules, they may be barring an appeal from the arbitral decision even if the law of the place of the arbitration permits an appeal.

This latter point may not be intuitively obvious to all parties. The rules of the well-known international arbitration institutions do not appear to have any provisions relating to or restricting appeals, presumably because, as already noted, under international commercial arbitration (and the UNCITRAL regime) there are no appeals. So a party involved in a domestic arbitration may not expect the arbitration rules to deal with appeals. If those rules do contain provisions dealing with appeals and the parties do not wish to adopt those provisions, then they should exclude those appeal provisions in their arbitration agreement.

One could argue that arbitral rules should not deal with appeals, since the parties may not expect that the rules will do so. One could also argue that, at the very least, the rules should alert the reader, in bold upfront print, that the rules do limit or prohibit appeals, and not in a clause near the end of the rules without any separate heading or highlighting.

An appellate court may re-examine the Highbury Estates decision in the future. If that occurs, two issues may arise.

One is a factual issue. What if one of the parties testifies that he or she did not read the part of the arbitral rules banning appeals, did not expect the rules to deal with appeals and did not realize the rules did so. Will the court still hold that this part of the rules is incorporated into the arbitration agreement?

The second issue is a legal one: the law relating to incorporation by reference. That subject has been dealt with extensively in construction law. There, a bond or subcontract may incorporate the main contract between the owner and the contractor. The majority of cases hold that the dispute resolution clause in the main contract is not thereby incorporated into the bond or subcontract. The reasoning of those cases is that the parties to the bond or subcontract intend the “working” or project parts of the main contract to be part of the bond or subcontract, but not the dispute resolution part unless it is expressly adopted.

Similar logic might arguably apply to the present issue. When parties to an arbitration agreement adopt arbitration rules, they intend to have those rules apply to the procedures of the arbitration itself, but do they intend to alter the existing statutory regime applicable to the court dispute resolution system, namely appeals, absent clear agreement to do so?

See Heintzman and Goldsmith on Canadian Building Contracts (5th ed.), Chapters 4§3(d), 11§11(a), 12§6(b).

Highbury Estates Inc. v. Bre-Ex Ltd., 2015 CarswellOnt 12073, 2015 ONSC 4966, 257 A.C.W.S. (3d) 22

Arbitration – appeal from arbitral award – arbitral rules – incorporation by reference

Thomas G. Heintzman O.C., Q.C., FCIArb                                                 February 14, 2016

www.heintzmanadr.com

www.constructionlawcanada.com

 

Alberta Court Issues Wide-Ranging Judgment on Settlement and Mediation of Arbitrations

In Pinder v. Woodrow, the Alberta Court of Queen’s Bench recently issued a judgment addressing a number of arbitration and mediation issues. The judgment arose from a settlement that in turn arose from a mediation conducted during the course of the arbitral hearing. As a result, the court dealt with a number of issues that are not frequently addressed in arbitration law. In particular, the judgment of the court dealt with the formalities –or lack thereof- that should be met in conducting a mediation and concluding a settlement during an arbitration. In Canada, there are two regimes relating to whether arbitrators may act as mediators. So this decision, while it involved a matrimonial dispute, is of interest to all those engaged in arbitral law.

Background

The parties entered into an arbitration agreement to deal with a number of matrimonial issues.  The agreement was subject to the Alberta Arbitration Act (the Act).  The agreement stated that the arbitration award would be delivered within 30 days of the close of the hearing “subject to any reasonable delay due to unforeseen circumstances.” The award was to be in writing and to set out the facts found by the arbitrator, apply the relevant law and the determination of the issues in dispute. The agreement provided for an appeal to the Court of Queen’s Bench on a question of law, or with leave of the Court on a finding of fact involving a material misapprehension of the evidence.

While evidence was being given during the hearing, the parties entered into settlement discussions. The Arbitrator acted as the mediator with the agreement of the parties. The parties reached a settlement agreement. Both parties, through their counsel, advised on the record that they were in agreement with the terms of the Settlement Agreement as a final settlement. The Arbitrator submitted his final statement of account three days later.

The settlement agreement was set out in a document entitled “Settlement Terms”. It was signed by the Arbitrator, both of the parties, together with their respective counsel. It included a term that any dispute involving the content of the agreement was to be referred to the Arbitrator for binding determination.

The parties then acted in accordance with that document. The husband commenced paying child support, the wife transferred property to the husband. The husband made repeated demands that the wife comply with all aspects of that document.

Two months after the document was signed, the wife’s counsel applied to the arbitrator for relief, taking the position that the arbitration had been adjourned and that it was still open to the arbitrator to continue the arbitration and issue a final award. The wife alleged that the arbitration had not been formally concluded and that it was still open to the parties to reach a full and final settlement, that the settlement document was not an Arbitral Award within the meaning of the arbitration agreement or the Act, that errors were made during the process that necessitated a remedy; and that the arbitrator retained jurisdiction to deal with these matters.

Counsel for the parties appeared before the arbitrator. After that appearance, the arbitrator issued a written decision in which he stated that the settlement agreement was his final award and he refused to grant any relief to the wife.  The next day, the wife filed an application appealing the arbitrator’s decision of the prior day.

Decision of the Court

The judge hearing the application made a number of decisions:

  1. Reasons for Decision in a Settlement: The requirement, in s. 36 of the Act – that an arbitrator give reasons for decision – does not apply when the parties settle the dispute during the arbitration.
  1. Ingredients of an Arbitral Decision: The settlement agreement complied with the other requirements of s. 38 of the Act, namely that it be signed by the Arbitrator, and indicate the date and place where it was made. The settlement document should be examined in conjunction with the executed Certificates of Independent Legal Advice, the Matrimonial Property Act acknowledgements signed by both parties and their counsel, the attachments to the agreement, and the content of the record from December 13, 2013 in which the parties confirmed their agreement with the settlement. In totality, those documents set forth the date of the settlement agreement and the place where it was made.
  1. Settlement Document may be an Arbitral Decision: The fact that the document was entitled “Settlement Terms” and was not referred to as an arbitration award was of no significance. “It was, in fact, an arbitral award and treated by all concerned as such until a much later date, well after the expiration of the 30 day appeal period…Further, there is nothing in the Act or the agreement which prescribes the form of an arbitration award, just that it comply with the requirements of s. 38.”
  1. Natural Justice, Fairness and Equal Treatment: While the wife was not present during some portions of the hearing, her counsel was present. Accordingly there was no breach of the rules of natural justice nor did the process result in either unfair or unequal treatment of the wife.
  1. Process for converting from Arbitration to Mediation: The conduct of the parties during the hearing – leading to the mediation – was sufficient to satisfy the requirements of s. 35(1) of the Act relating to the conversion of the arbitration to a mediation.

Subsection 35(1) says: “The members of an arbitral tribunal may, if the parties consent, use mediation, conciliation or similar techniques during the arbitration to encourage settlement of the matters in dispute.” (emphasis added)

The parties’ conduct during the arbitral hearing was a sufficient “consent” by the parties to convert the arbitration into a mediation. The court held that there was no need for that process to be “explicit, formal, on the record and take place in advance of the conversion of the process.” The Act contains no ‘formula or “recipe”’ for that consent, and that is “consistent with the overall objective of the legislation – to provide a flexible mechanism to litigants that potentially assists them in the resolution of their dispute outside of the formal court process….Both parties were represented by experienced counsel throughout the process. From their agreement to submit this matter to arbitration, the parties must be assumed, in the absence of any evidence to the contrary, to have understood the flexible nature of the process, including that the process could shift from one mode of dispute resolution to another as circumstances dictated.”

The judge did say that “it would have been preferable if the transcript had recorded the proceedings that led the parties and the Arbitrator to shift from arbitration mode to mediation mode.” However, there was no evidence indicating a lack of consent, and there was “very explicit agreement of both parties that is contained on the record at the conclusion of the proceedings.” On the whole record, the judge was satisfied that the parties had consented to shifting from an arbitration to mediation and that the requirements of s. 35 were met.

  1. Time to Appeal: The wife’s appeal was outside the 30-day period in the Act for an appeal to be brought. The settlement document was a valid arbitration award within the meaning of s. 38 of the Act. Once the 30-day period expired after the release of that document, then the arbitrator no longer had jurisdiction over the dispute. Neither the Act nor the agreement between the parties allowed for an extension of the 30-day period. The arbitrator’s later decision which dismissed the wife’s application to re-open the matter was of no legal significance or consequence, even though it was entitled “Arbitration Award”.

Discussion

This decision will be a useful reference anytime settlement discussions occur during an arbitration, and anytime the parties consider engaging in mediation during an arbitration.

The first issue is: how should the parties and the arbitrator record the process by which a settlement is reached during an arbitration?

Section 35(1) of the Alberta Arbitration Act says that “the members of an arbitral tribunal may, if the parties consent, use mediation, conciliation or similar techniques during the arbitration to encourage settlement of the matters in dispute.” (emphasis added) And subsection (2) then says that “after the members of an arbitral tribunal use a technique referred to in subsection (1), they may resume their roles as arbitrators without disqualification.” These subsections state the premise behind section 36 and the policy behind the Alberta Act, namely, that members of the arbitral tribunal may mediate the dispute if the parties consent, and then if the mediation is unsuccessful, they may revert to their position as members of the arbitral tribunal.

This policy position is quite different than that in some other provincial arbitration statutes. Thus, the Ontario Arbitration Act, 1991 states as follows: “The members of an arbitral tribunal shall not conduct any part of an arbitration as a mediation or conciliation process or other similar process that might compromise or appear to compromise the arbitral tribunal’s ability to decide the dispute impartially.”

However, section 3 of the Ontario Act says that, except with respect to certain specific sections, the parties may contract out of the Act. Section 35 and the section dealing with appeals (section 45 in the Ontario Act) are not listed in section 3, so the parties may contract out of them. In addition, under the Ontario Act, the parties could still engage in settlement discussions and mediation: the only prohibition (unless the parties otherwise agree) is that the members of the arbitral tribunal cannot be the mediators.

[This distinction in policy choices is expressly contained in the Uniform Arbitration Act of the Uniform Law Conference of Canada. Section 35 of the Uniform Act contains an Option A and an Option B. Option A is the one chosen by Alberta. Option B is that chosen by Ontario. The Commentary to Section 35 states:

“Enacting jurisdictions may choose either to allow the arbitrators to practise mediation and conciliation or to forbid them from doing so. The Uniform International Commercial Arbitration Act allows the arbitrators to engage in mediation on the consent of the parties. The present statute provides for a single consent at the beginning of mediation, without a separate consent when the arbitrator goes back to arbitrating, the mediation presumably having failed. The reason for eliminating the double consent found in the international statute was to prevent a party from subverting an arbitration in bad faith at the end of mediation, by refusing consent to return to arbitration. The reason for forbidding a change of role is that a mediator or conciliator may learn things from one party in confidence that he or she may not disclose to the other parties. Knowing this information might be perceived to prevent a judicial disposition of the case on the merits if the person then returns to arbitration.”]

Section 36 of the Alberta Arbitration Act then says that “If the parties settle the matters in dispute during arbitration, the arbitral tribunal shall terminate the arbitration and shall record the settlement in the form of an award.” As noted above, section 38(1) says that “An award shall be made in writing and, except in the case of an award made under section 36, shall state the reasons on which it is based.” (emphasis added).

So it is seems clear that a settlement during an arbitration should be recorded in something called “Award”, even though most litigation counsel might consider a settlement agreement to be an agreement between the parties, not an “award” of the tribunal. It also seems clear from section 38(1) that the settlement “Award” will not contain reasons, and the judge so concluded.

Sub-sections 38(2)-(4) of the Alberta Act say that: an award shall “indicate the place where and the date on which it is made” and “be dated and signed by all the members of the arbitral tribunal, or by a majority of them if an explanation of the omission of the other signatures is included”; and that “a copy of an award shall be served on each party.” (emphasis added) In these subsections, there is no exception for settlements under section 36. So, while one may wonder why these requirements should apply to a settlement, it seems that they do and that they must be met even if the “award” is a settlement.

Under sections 36-38 of the Ontario Act, these requirements apply to a settlement “Award”, even though the members of the arbitral tribunal cannot be the mediator.

The court in the present case demonstrated flexibility in considering all the surrounding facts in order to ensure that the technical requirements of section 38(2)-(4) are met. However, arbitrators and arbitral parties should be aware of these requirements – date, place, signature, service. These requirements should be addressed in the document which the arbitral tribunal issues as its “award” or in some other formal documentation, so that other documents or the surrounding circumstances do not have to be relied upon to provide those elements.

The second issue is: how should the parties’ consent to mediation during the arbitration be evidenced?

In the present case, the judge was satisfied by all of the surrounding evidence – and particularly the documentation after the settlement was made – that the parties had consented. But the judge did say that it would have been better if the “conversion” from arbitration to mediation had been recorded in the transcript of the hearing before the mediation commenced, and possibly in some formal Consent signed by the parties at that time. So counsel and arbitral tribunals in the future might be well advised to adhere to this advice in the future.

Should these requirements, and the same approach to them, apply if the members of the arbitral tribunal cannot be the mediator, as in Ontario (unless the parties contract out of section 35 of the Ontario Act)? Could one argue for a more lax – or stricter – regime when the mediator is a separate person? We will have to await a further decision on that point.

A third issue may be raised by this decision: if the wife’s application to the court related to the conduct or legal issues arising from her application to the arbitrator the day before (what might be called the “re-hearing application”), would it have been out of time?

In the present case, the wife appears to have been complaining about issues that related back to the matters leading up to the settlement. She does not appear to have been complaining about the specific events or legalities of her re-hearing application the day before to the arbitrator. In this situation, the arbitrator and the court found that her application was out of time. But if she had been asserting that her re-hearing application had not been properly dealt with, how should the court have dealt with the timing issue? Did the arbitrator’s disposition of her re-hearing application amount to an arbitral award from which judicial review or an appeal would lie? Does the Act provide any relief in respect of such an application? The present decision did not have to answer those questions.

See Heintzman and Goldsmith on Canadian Building Contracts, 5th ed. Chapter 11

Pinder v. Woodrow, 2015 CarswellAlta 2182, 2015 ABQB 750

Arbitration – mediation – settlement – re-hearing application – appeal and review of arbitral awards

Thomas G. Heintzman O.C., Q.C., FCIArb                                   January 24, 2016