|
Arbitration - Court Set-Asides [AA s.46]. Eyelet Investment Corp. v. Song
In Eyelet Investment Corp. v. Song (Div Court, 2024) the Divisional Court considered an interesting arbitration mess, where the arbitrator asserted a radical degree of independence that did not accord with the views the appeal judges involved. An arbitrator-sympathetic characterization is that of cultural differences between the judicial and the arbitration 'benches'. It's a useful and even entertaining read, although at the end the CA puts it's foot down firmly on the side of law:[1] Domestic arbitrations in Ontario must be decided in accordance with the law. Arbitrators are accorded broad deference for matters within their jurisdiction and in defining the scope of their jurisdiction. But they are not free to ignore the law or to decide cases in accordance with their whims.
....
The Law Applies to Arbitrations
[31] Arbitrators, like judges, are required to follow the law of the land. Section 31 of the Arbitration Act, 1991 provides:Application of law and equity
31 An arbitral tribunal shall decide a dispute in accordance with law, including equity, and may order specific performance, injunctions and other equitable remedies. [32] In Omers Realty Corp. v. Sears Canada Inc. (2005), 2005 CanLII 3983 (ON SC), 74 O.R. (3d) 423 (S.C.), at para. 22, aff’d (2006), 2006 CanLII 16477 (ON CA), 80 O.R. (3d) 561 (C.A.), Pepall J. (as she then was) explained at para. 22:Section 31 of the Arbitration Act, 1991 provides that an arbitral tribunal is to decide a dispute in accordance with the law. The arbitration represents a process to address a dispute; it does not confer jurisdiction to ignore or rewrite the law and established legal principles. Put differently, the arbitration provision does not confer on the arbitrators the ability to do what they please unencumbered by applicable legal principles. [33] There are many sources of law. The courts do not have a monopoly on establishing the content of the law. But the Arbitration Act, 1991 creates a hierarchy that feeds into the judicial hierarchy and attracts the doctrine of stare decisis. Section 37 of the statute provides:Binding nature of award
37 An award binds the parties, unless it is set aside or varied under section 45 or 46 (appeal, setting aside award). [34] Subsection 45 (5) of the Arbitration Act, 1991 provides,Idem
(5) The court may confirm, vary or set aside the award or may remit the award to the arbitral tribunal with the court’s opinion on the question of law, in the case of an appeal on a question of law, and give directions about the conduct of the arbitration. [35] The effect of these provisions is that once an arbitrator’s decision is set aside, it no longer binds. The court is expressly provided with the authority to opine on questions of law and to give directions to the arbitrator in consequence. It is implicit in the section and consonant with stare decisis and common sense, that the court’s determination of the law and the court’s directions do indeed bind the arbitrator as they bind the parties.
[36] It was not open to the Arbitrator to ignore the findings of the court on appeal regardless of whether he believes that he is correct in his view of the merits. Nor is he entitled to impose a burden on a court to convince him of the existence of breaches of contract even if they are the opposite of the findings he made. His findings were wrong in law and O’Brien J. was empowered, entitled, and duty-bound to say so. He, on the other hand, was bound to implement the findings of the court regardless of whether he accepts the applicable principles.
[37] It is not a question of the status of individuals binding or trumping others. Rather, as stated by Pepall J., all decision-makers under the Arbitration Act, 1991, whether arbitrators or judges on appeal, are governed by applicable legal principles. Just as my assessment of applicable principles yields to courts of appeal with statutory jurisdiction to correct my mistakes, so too do the decisions of arbitrators yield to correction on appeal. . Campbell v. Toronto Standard Condominium Corporation No. 2600
In Campbell v. Toronto Standard Condominium Corporation No. 2600 (Ont CA, 2024) the Ontario Court of Appeal allowed an appeal from a Superior Court application ruling that reversed an arbitrator's award ruling. The application held that s.46(1)9 ['Setting aside award - Fraud'] and s.47(2) of the Arbitration Act (AA) ['Time limit - Exception for Fraud'] operated, here on the argument that 'constructive fraud' (which is an equitable principle quite broader that typical fraud) applied in these AA provisions:[1] This appeal raises the narrow question of the meaning of the word “fraud” in the Arbitration Act, 1991, S.O. 1991, c. 17, (the “Act”) and, in particular, whether the word as used in s. 46(1)9 and s. 47(2) of the Act includes “constructive fraud”. Section 46(1)9 permits a court to set aside an arbitral award that was obtained by fraud, and s. 47(2) provides that the normal 30-day time limit for commencing an application or appeal does not apply if fraud or corruption is alleged.
....
[4] The application judge granted the respondents’ application and set aside the arbitral award. Although he held that there was no actual fraud in this case, he found that the Condo Corp. had committed constructive fraud by agreeing to proceed with the arbitration to determine the issue of costs but then expanding the issues to address the entire history of the dispute between the parties. He held that the word “fraud” as it appears in s. 46(1)9 and s. 47(2) includes constructive fraud.
....
(f) Fraud v. constructive fraud
[51] In this case, the application judge gave the word “fraud” an expansive interpretation, including not only fraud but also the equitable concept of constructive fraud. As can be seen from his description of the difference between fraud and constructive fraud, in Holley, at para. 130, it is readily apparent that constructive fraud is a much broader concept than fraud, in that it eliminates the requirements of knowledge and intent to deceive:To summarize, at its core, common law fraud involves dishonest and moral turpitude. The fraud elements of common law fraud are that the defendant has an intent to deceive and makes a false statement that he or she knows is false or the defendant makes a false statement that he or she is indifferent to its truth value. Constructive fraud does not necessarily involve dishonesty or moral fraud in the ordinary sense, but a breach of sort that would be enforced by a court of conscience. [Emphasis in the original.] [52] In the words of the application judge, constructive fraud focuses on the concept of “unfairness”.
(g) “Fraud” does not include constructive fraud
[53] The word “fraud”, which is not defined in the Act, is used twice in the Act: in ss. 46(1)9 and 47(2). Given the presumption of consistent expression – the presumption that within a statute the same words have the same meaning and different words have different meanings – the word “fraud” has the same meaning in both sections: Sullivan, at § 8.04.
[54] As the application judge recognized, the word “fraud” has an established legal meaning at common law. The Supreme Court has recognized that “[w]ords that have a well-understood legal meaning when used in a statute should be given that meaning unless Parliament clearly indicates otherwise”: R. v. D.L.W., 2016 SCC 22, [2016] 1 S.C.R. 402, at para. 20. Thus, had the Legislature intended to extend the meaning of “fraud” to include the different and broader concept of “constructive fraud” one would have expected it to do so explicitly.
[55] Reading “fraud” to include the concept of “constructive fraud” would be out of step with appellate case law. As set out above, this court has consistently stated that s. 46 provides a narrow basis upon which a court may interfere with an arbitral award and does not create an alternate appeal route. The approach is consistent with the objectives of the Act – to promote efficiency and finality. While this court has not opined on s. 47(2), it has affirmed that there is no judicial discretion to extend the 30-day time limit under s. 47(1), which is also consistent with the principles of efficiency and finality.
[56] Case law has also repeatedly emphasized the exceptional nature of applications to appeal or set aside arbitral awards and the primacy of the terms of the arbitration agreement under which parties may restrict or preclude appeals. It has also cautioned courts to be aware of strategic attempts by losing parties to expand the scope of review beyond what they had agreed to under the arbitration agreement.
[57] In my view, expanding the meaning of the word fraud in s. 46(1)9 and s. 47(2) to include constructive fraud would be at odds with this case law. It risks significantly undermining the principles of efficiency and finality, because the nature of constructive fraud is much broader than that of fraud itself, as the application judge recognized. Unlike civil fraud, actual dishonesty or intent to deceive is not required to establish constructive fraud.
[58] Expanding the meaning of “fraud” also risks inviting strategic enlargement of the grounds for setting aside an arbitral award, as illustrated by this case.
[59] In this case, had the parties applied to set aside the arbitral award within the 30-day period set by s. 47(1), it is conceivable that their claims might have fallen within some of the other grounds enumerated in s. 46 for setting aside an award, such as the invalidity of the agreement, as set out in s. 46(1)2, or procedural unfairness, as set out in s. 46(1)6 of the Act, though I do not want to be taken as suggesting that such grounds would or could have succeeded in the circumstances. Those routes were no longer open to the respondents after the expiration of 30 days by the express terms of ss. 46 and 47: see e.g., Mattamy (Downsview) Limited v. KSV Restructuring Inc. (Urbancorp), 2023 ONSC 3013, at paras. 39-40.
[60] Instead, the respondents sought to circumvent the time limit by alleging fraud and constructive fraud. The application judge delved into the merits of the arbitrator’s decision in the course of reaching his conclusion that constructive fraud is included in the meaning of fraud. Each side had a different view of what “costs” meant. This was at the heart of the merits of the case. But it was not open to the respondents to argue that the arbitrator had erred, or wrongly or even unfairly interpreted the terms of the agreement in seeking to have the award set aside under s. 46(1)9. For these reasons, I conclude that the application judge erred in interpreting “fraud” to include constructive fraud in s. 46(1)9 and s. 47(2).
[61] In any event, to the extent that the arbitrator did determine substantive issues that were not simply “costs” in the narrowest sense, it did not amount to constructive fraud in the circumstances. It was appropriate and necessary for him to consider factors such as the history and nature of the complaints, the length of the proceedings and the reasonableness of the parties’ conduct in the course of exercising his costs discretion: Act, s. 54; see also s. 4 of the Notice of Arbitration. . Campbell v. Toronto Standard Condominium Corporation No. 2600
In Campbell v. Toronto Standard Condominium Corporation No. 2600 (Ont CA, 2024) the Ontario Court of Appeal allowed an appeal from a Superior Court application ruling that reversed an arbitrator's award ruling. The application held that s.46(1)9 ['Setting aside award - Fraud'] and s.47(2) of the Arbitration Act (AA) ['Time limit - Exception for Fraud'] operated, here on the argument that 'constructive fraud' (which is an equitable principle quite broader that typical fraud) applied in these AA provisions.
Here the court reviews the AA s.46 set aside provisions:(d) Case law interpreting s. 46: applications to set aside
[42] In this case, as the application judge explained, no appeal was available, and so the issue was whether there was a basis for setting aside the award under s. 46.
[43] While the parties have not pointed to any case law interpretating s. 46(1)9, there is recent case law from this court interpreting s. 46. This case law takes a narrow approach to the interpretation and application of this section.
[44] For example, in the recent Alectra decision, this court addressed whether the arbitrator’s decision should be set aside pursuant to s. 46(1)3 of the Act, which allows an award to be set aside if it “deals with a dispute that the arbitration agreement does not cover or contains a decision on a matter that is beyond the scope of the agreement”. In Alectra, Huscroft J.A. described s. 46 as authorizing a court to set aside an arbitral award on “limited and specific grounds”, which “are, in general, not concerned with the substance of the parties’ dispute”: at paras. 23-24. He emphasized that “s. 46(1)3 allows only for limited review for jurisdictional error” and that the provision “neither requires nor authorizes review of the substance of an arbitrator’s award”: at para. 43 He observed, at para. 27, that arbitrators must act within the bounds of the authority granted by the arbitration agreement pursuant to which they are appointed – “no less, but no more”. He rejected the respondent’s attempt to import a more elastic concept of jurisdiction into s. 46 of the Act: see paras. 28-34.
[45] This court also considered the application of s. 46(1)3 in Mensula Bancorp Inc. v. Halton Condominium Corporation No. 137, 2022 ONCA 769, leave to appeal refused, [2023] S.C.C.A. No. 120. The court reiterated that s. 46(1)3 of the Act “provides a narrow basis upon which, a court may interfere with an arbitration award”, “does not create a right of appeal”, and “allows only for limited review for jurisdictional error”: see paras. 5, 40.
[46] In Tall Ships, this court again reiterated, at paras. 2 and 95, that the basis for setting aside an arbitral award under s. 46 of the Act is narrow, is not concerned with the substance of the parties’ dispute, and is not to be treated as an alternate appeal route.
[47] In short, the court’s recent trilogy of cases has made clear that the grounds for setting aside an arbitral award listed in s. 46 are narrow and that s. 46 is not an alternate appeal route. This interpretation gives effect to the Act’s objectives of efficiency and finality. . Campbell v. Toronto Standard Condominium Corporation No. 2600
In Campbell v. Toronto Standard Condominium Corporation No. 2600 (Ont CA, 2024) the Ontario Court of Appeal allowed an appeal from a Superior Court application ruling that reversed an arbitrator's award ruling. The application held that s.46(1)9 ['Setting aside award - Fraud'] and s.47(2) of the Arbitration Act (AA) ['Time limit - Exception for Fraud'] operated, here on the argument that 'constructive fraud' (which is an equitable principle quite broader that typical fraud) applied in these AA provisions.
Here the court cites these AA statutory provisions:(4) Relevant Statutory Provisions
[27] It will be useful to set out s. 46(1) and s. 47 of the Act at this point for easy reference in the course of the following discussion.
[28] Section 46(1) sets out an exhaustive list of grounds on which a court may set aside an arbitral award, including under s. 46(1)9 “if the award was obtained by fraud”:46 (1) On a party’s application, the court may set aside an award on any of the following grounds:
1. A party entered into the arbitration agreement while under a legal incapacity.
2. The arbitration agreement is invalid or has ceased to exist.
3. The award deals with a dispute that the arbitration agreement does not cover or contains a decision on a matter that is beyond the scope of the agreement.
4. The composition of the arbitral tribunal was not in accordance with the arbitration agreement or, if the agreement did not deal with that matter, was not in accordance with this Act.
5. The subject-matter of the dispute is not capable of being the subject of arbitration under Ontario law.
6. The applicant was not treated equally and fairly, was not given an opportunity to present a case or to respond to another party’s case, or was not given proper notice of the arbitration or of the appointment of an arbitrator.
7. The procedures followed in the arbitration did not comply with this Act.
8. An arbitrator has committed a corrupt or fraudulent act or there is a reasonable apprehension of bias.
9. The award was obtained by fraud.
10. The award is a family arbitration award that is not enforceable under the Family Law Act. [Emphasis added.] [29] Section 47(1) of the Act sets out the time limit for appealing or applying to set aside an award. Section 47(2) specifies that the time limit does not apply if the appellant or applicant alleges corruption or fraud:47 (1) An appeal of an award or an application to set aside an award shall be commenced within thirty days after the appellant or applicant receives the award, correction, explanation, change or statement of reasons on which the appeal or application is based.
(2) Subsection (1) does not apply if the appellant or applicant alleges corruption or fraud. . Tall Ships Development Inc. v. Brockville (City)
In Tall Ships Development Inc. v. Brockville (City) (Ont CA, 2022) the Court of Appeal addressed a case where they held that an application judge had 'stretched' their interpretations to reach a 'question of law' (here, 'hearing fairness'), which allowed the respondent to access a statutory court set aside right under s.46 [court set aside on numerous grounds] of the Arbitration Act:[2] Central to this appeal is the fact that the parties agreed that the decision of the arbitrator was to be final, subject only to appeals on questions of law under s. 45(2) of the Arbitration Act, 1991, S.O. 1991, c. 17 (“Arbitration Act”). The application judge erred by characterizing questions of mixed fact and law as extricable questions of law. Moreover, in characterizing the same arguments as breaches of procedural fairness falling under s. 46 of the Arbitration Act, the application judge effectively bootstrapped the substantive arguments. This court has recently emphasized the narrow basis for setting aside an arbitral award under s. 46 of the Arbitration Act, which is not concerned with the substance of the parties’ dispute and is not to be treated as an alternate appeal route: Alectra Utilities Corporation v. Solar Power Network Inc., 2019 ONCA 254, 145 O.R. (3d) 481, at paras. 20-27, 40-44, leave to appeal refused, [2019] S.C.C.A. No. 202; Mensula Bancorp Inc. v. Halton Condominium Corporation No. 137, 2022 ONCA 769, at paras. 5, 40.
....
[36] The core of the application judge’s conclusion was that the arbitrator erred in finding that “time was of the essence” because the point was neither advanced nor argued. She reasoned that this finding was critical to his conclusion that Tall Ships, through its inaction, had lost its right to contest Brockville’s non-acceptance of them. In her view, basing his decision on this point thus “violated mandatory rules of procedural fairness in the Arbitration Act” TSL (ONSC), at para. 35. As she stated, at para. 33, of her reasons:The Arbitrator’s reasoning is problematic because it hinged on a contractual interpretation that was neither advanced nor argued. [Brockville] did not allege, in its statement of defence, that the parties agreed that time was of the essence in the performance of their obligations under the [B.A.] or, more specifically, in Tall Ships’ response to a Rejection Notice under clause 22.3(d). As already mentioned, there is no reference to time being of the essence in the [B.A.] itself. The point was not raised in written or oral argument to the Arbitrator, nor did he ask the parties, before reaching his decision, for additional submissions on this point. [37] With respect, the application judge erred in finding that Tall Ships’ procedural fairness rights under s. 46(1) of the Arbitration Act had been breached. As I discuss further below, I do not accept Tall Ships’ submission that the arbitrator’s conclusion on the “time of the essence” clause was neither advanced nor argued before the arbitrator. The application judge’s conclusion on procedural fairness rests on her finding that the arbitrator implied a term into the contract that had neither been advanced nor argued.
....
[49] This was a question of mixed fact and law which fell squarely within the purview of the arbitrator, by which process the parties had chosen to resolve this dispute, with appeals on questions of law only. . Mensula Bancorp Inc. v. Halton Condominium Corporation No. 137
In Mensula Bancorp Inc. v. Halton Condominium Corporation No. 137 (Ont CA, 2022) the Court of Appeal considered a set aside provision [here, s.46(1)3] of the Arbitration Act:[5] As explained in Alectra Utilities Corporation v. Solar Power Network Inc., 2019 ONCA 254, 145 O.R. (3d) 481, leave to appeal refused, [2019] S.C.C.A. No. 202, s. 46(1)3 of the Arbitration Act, 1991 provides a narrow basis upon which a court may interfere with an arbitration award. It does not create a right of appeal, nor contemplate a review of the correctness or reasonableness of the arbitrator’s decision. It requires that the court not interfere with the arbitrator’s award as long as the issue decided was properly before the arbitrator.
[6] The application judge proceeded in a manner that s. 46(1)3 does not permit. The arbitrator said he decided the parties’ dispute by interpreting the condominium’s declaration. Whether he interpreted the declaration correctly or reasonably was irrelevant. Yet the application judge relabelled his decision as a purported interpretation that was “in effect” an amendment, because of her view that the result he arrived at could not be reached through a proper interpretive analysis. Under this approach, and contrary to that mandated by Alectra, only an award that resulted from an interpretation of the declaration that the court considered reasonable or correct would be immune from judicial intervention; anything else would “in effect” be an amendment beyond the jurisdiction of the arbitrator, and able to be set aside. There is more analysis at paras 35-53.
|
