This question seems very straightforward, but when the Arbitration Act provides several rights of appeal, depending on what the parties have or have not agreed upon, then which of those rights of appeal apply? Only the right to appeal that applies if the parties have not agreed to further rights of appeal? Or, all the rights of appeal as if the parties had agreed to them?

In 6524443 Canada Inc. v. Toronto (City), 2017 CarswellOnt 9006, 2017 ONCA 486, the Ontario Court of Appeal has held that it is the former, and that by these words the parties do not engage the appeal rights that they could have engaged by specific agreement.

The Ontario Arbitration Act, 1991 (the present Act)

Section 45(1) of the Ontario Arbitration Act, 1991 provides that, if the arbitration agreement does not deal with appeals on questions of law, a party may appeal an award to the court on a question of law with leave, which the court shall grant only if it is satisfied that (a) the importance to the parties of the matters at stake in the arbitration justifies an appeal; and (b) determination of the question of law at issue will significantly affect the rights of the parties.

In addition, the present Act allows the parties to agree to appeals on questions of law, fact or mixed fact and law: sections 45(2) and (3). The lead-in to both those sub-sections states: “If the arbitration agreement so provides….”

To which rights of appeal did the parties agree to: the 45(1) rights (that is, on questions of law with leave); or the section 45(2) and (3) rights (that is, on questions of law, fact or mixed fact and law, without the necessity of leave)?

This question becomes more important since the decision of the Supreme Court of Canada in Creston Moly Corp. v. Sattva Capital Corp., (2014), 2014 SCC 53, 2014 CarswellBC 2267. In that decision, the Supreme Court held that, except in the exceptional case where a question of pure law arises, the interpretation of a contract is a question of mixed fact and law. Therefore, if section 45(1) applies, and if no pure question of law arises, an appeal cannot be taken from an arbitral award interpreting a contact.

Interestingly, the Arbitrations Act, R.S.O 1970 contained broad rights of appeal.  As the motion judge noted:

  “The 1970 Act provided for full rights of appeal. It did not differentiate between appeals on questions of law, fact or mixed fact and law. Section 16(1) of the 1970 Act reads: Where it is agreed by the terms of the submission that there may be an appeal from the award, an appeal lies to the Divisional Court.”

The Appeal Rights In The Agreements

The present case arose from a lease under which the renewal rent was to be set by arbitration if the parties could not agree on the amount of the renewal rent. The parties entered into two contracts affecting the rights of appeal. In the lease the appeal rights were described as follows:

“The decision of the arbitrators shall be subject to appeal in accordance with the provisions of The Arbitrations Act, R.S.O. 1970, as amended, or any successor Act.”

Then, after the arbitration had been launched, and for the purposes of the arbitration itself, they entered into another agreement which stated:

“The decision of the arbitrators shall be subject to appeal in accordance with the provisions of the Arbitration Act, 1991, S.O. 1991, c. 17 as amended, or any successor Act.”

The Decision Of The Superior Court Of Justice

After the arbitrator’s award, the numbered company (referred to in the judgments as Brookfield) appealed the award to the Ontario Superior Court of Justice. Brookfield filed affidavit evidence to argue that broader rights of appeal had been agreed between the parties, and the City filed evidence in response. The motion judge refused to consider the affidavit evidence, and held that: the arbitration agreement was a stand-alone agreement that provided only for appeals on questions of law, with leave; even if the lease were considered, it did not provide for broader rights of appeal; and that Brookfield’s notice of appeal raised only questions of fact or mixed fact and law. The appeal was accordingly quashed.

The Decision Of The Ontario Court Of Appeal

The Ontario Court of Appeal dismissed the appeal. It held as follows:

  1. The motion judge’s decision was reviewable on a standard of reasonableness. It involved the interpretation of the relevant arbitration statutes, which did not involve an “extricable” legal issue to be reviewed on a standard of correctness.
  1. The motion judge correctly refused to consider the affidavit evidence. That evidence really concerned the parties’ respective negotiation stances, not their mutual commercial objectives. The subjective intentions or objectives of each party were not helpful in interpreting the appeal provisions.
  1. The motion judge reasonably concluded that the second arbitration agreement was intended to be a stand-alone agreement governing the arbitration and the appeal rights from the award. The Court of Appeal said:

“The Lease provisions concerning arbitration are very brief, consisting of four clauses. The parties chose to enter into a detailed Arbitration Agreement, which included a comprehensive procedure for the arbitration, that in certain respects differs from what was provided for under the Lease (for example, in the manner of appointment of the arbitrators). There is no reason to conclude that, having set out in some detail the procedure for the arbitration, including addressing an appeal from the Award, the parties assumed that any provision of the Lease respecting the arbitration would continue to apply, especially where inconsistent with the Arbitration Agreement. And there is no merit to the appellant’s argument that, because the Arbitration Agreement referred to article 1(d) of the Lease, it must have intended the arbitration to be governed by the terms of the Lease. This is simply a recital of the circumstances in which the arbitration is taking place — “for the determination of Fair Market Rental for the Second Rental Period as those terms are defined in the Lease”. We agree with the motion judge that “there is no need to refer back to the Lease in order to interpret any of the terms of the Arbitration Agreement”.” (underlining added)

  1. Even if the arbitration provisions of the lease were considered, the motion judge conclusion was reasonable. The lease referred to the arbitral award being “subject to appeal in accordance with the provisions of [the 1970 Act], or any successor Act” ). As the Court of Appeal said:

“By its terms the Lease anticipated an appeal would be governed by the arbitration legislation in force at the time of the arbitration. We see no merit in the appellant’s argument that the reference to the 1970 Act addressed substantive rights to appeal an arbitrator’s award, while “any successor Act” would only apply to the arbitration procedure. Both the Lease and the Arbitration Agreement provide for the parties’ appeal rights to be governed by the 1991 Act.”

  1. The wording of both appeal provisions did not include any further rights of appeal than an appeal on a question of law with leave. For any further rights of appeal to exist:

requires the agreement to specify whether the parties have the right to appeal questions of law, fact or mixed fact and law, failing which they are entitled to appeal only on questions of law, with leave”. The parties chose to enter into the Arbitration Agreement which included a specific appeal provision that referenced the 1991 Act, without saying anything more.” (underlining added)

Discussion

This decision raises a number of interesting issues:

  1. The Court of Appeal’s interpretation of section 45 of the present Act seems logical, but it also seems to contravene one rule of contractual interpretation.

One fundamental rule of contractual interpretation is the rule against tautology. Every provision in a contract is intended to be effective. Here, the appeal provision in each of the agreements is rendered ineffective by the courts’ interpretation. If those provisions did not exist, the parties would have the right to seek leave to appeal on a question of law, the very right that the parties have been found to have agreed to by those provisions. In the result, the appeal provisions are of no use or effect.

  1. The Court of Appeal discounted the fact that the lease referred to the 1970 version of the arbitral statute. The Court of Appeal has held that the parties intended that the wording of the arbitral statute from time to time in force would apply to any arbitration under the lease. That is obviously so, but one might have thought that in interpreting the wording of appeal provisions in both the lease and the arbitration agreement, one should have regard to the fact that under the original lease and the arbitral statute then applicable, there were full rights of appeal.

The combined effect of a rule of contractual interpretation (the rule against tautology) and the history of the Arbitration(s) Act were not sufficient to overcome what the Court of Appeal found to be the plain meaning of the arbitration agreements.

In the result, the Court of Appeal has decided that, under the present Act the parties must specifically state that there is to be a right of appeal (not just an appeal with leave) and specifically state that the right of appeal is on questions of fact, law and mixed fact and law, if that is what the parties intend.

Again, there is a lesson to be learned. When an arbitral agreement refers to the arbitral statute “or successor statute” or words to that effect, any time the arbitral statute is changed, so is the arbitral agreement. With impending amendments to the Arbitration Act, 1991 on the horizon, practitioners should be examining arbitral agreements carefully, as they may be about to be amended by statute.

  1. When an arbitration appointment agreement is entered into for the purpose of a specific arbitration, the parties do not usually intend to amend the arbitral rights under their original commercial agreement. They think that they are just making specific arrangements between themselves and with the arbitrator respecting that arbitral appointment and that arbitration. In that arbitration appointment agreement, they may insert a reference to the contemporary arbitral statute as a matter of rote. But this case tells us that, by inserting that reference, the parties are over-ruling and replacing the arbitration agreement in that commercial agreement.

So the parties should be very careful to consider how that arbitral appointment agreement may later be seen to affect the arbitral appeal rights, and indeed all other rights, in the original commercial agreement.

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

6524443 Canada Inc. v. Toronto (City), 2017 CarswellOnt 9006, 2017 ONCA 486

Arbitration – appeal – arbitral appointment agreements – appeals on questions of law, fact, and mixed fact and law

Thomas G. Heintzman O.C., Q.C., LL.D(Hon.), FCIArb                       July 23, 2017

www.heintzmanadr.com

www.constructionlawcanada.com