ONTARIO – An Arbitrator’s determination of the procedure to be followed in an arbitration includes the power to proceed by way of summary judgment without a party’s consent: Arbitration Act, 1991, ss. 20 and 26(1).
An arbitral award will not be set aside on the basis that the arbitrator did independent research if the parties were aware of the cases the arbitrator relied on and had an opportunity to respond to them. Application to set aside arbitral award and for leave to appeal dismissed. Arbitration Act,1991, ss.45(1) and 45(1).
Optiva Inc. v. Tbaytel
2021 ONSC 2929 (CanLII), https://canlii.ca/t/jfjc9
W.D. Newton J., April 4, 2021
Editor’s Note: ONCA has granted leave to appeal this decision.
Tbaytel had a Software Supply, License, Hardware and Services Agreement (“Agreement”) with Optiva for $8 million. Delivery milestones were missed, and the project was not completed. Tbaytel terminated the Agreement and commenced an arbitration against Optiva.
The agreement to arbitrate clause gave the arbitrator jurisdiction “to consider and rule upon all motions… without limitation and the power to make rulings, directions and generally deal with any and all interlocutory matters and procedural questions relating to the issues within the Arbitration.”
At a procedural hearing the arbitrator made a procedural order setting out a timeline for a summary judgment (“SJ”) process, involving exchange of affidavits, cross- examinations, and legal submissions. Optiva objected to the SJ process at the beginning of the SJ motion on the basis that the arbitrator did not have jurisdiction to proceed by way of SJ motion without Optiva’s consent.
The arbitrator concluded that even though the law was unsettled on whether or not consent of all parties was required to proceed by summary judgment, he had jurisdiction to proceed by way of summary judgment motion having regard to the agreement to arbitrate, and the lack of exclusions in it and section 20 of the Ontario Arbitration Act (“Act”).
The arbitration “hearing” proceeded as a summary judgment motion. The arbitral award confirmed Tbaytel’s right to terminate the Agreement due to Optiva’s breach by failing to use best efforts to ensure Optiva’s staff were available to work on the project. The arbitrator also held that Optiva had breached its duty of good faith and honest performance of the Agreement by failing to ensure that their advice and information was accurate and not misleading. As a result, the arbitrator ordered that Optiva repay Tbaytel the amounts Tbaytel had paid of about $4 million, and that a limitation of liability clause did not bind Tbaytel.
Optiva moved to set aside the award pursuant to s. 46(1) or for leave to appeal under s. 45(1) of the Act on the basis that:
- the arbitrator could not proceed by way of summary judgment without Optiva’s consent;
- the arbitrator decided the summary judgment motion on issues not raised by Tbaytel and as a result, decided matters outside of the scope of the arbitration agreement; and
- the arbitrator decided the SJ motion based on his own legal research without giving the parties a chance to make further submissions, and therefore, Optiva had not been treated fairly and it did not have an opportunity to present its case.
Under s. 20 of the Act, the arbitrator may determine the procedure to be followed without Optiva’s consent. The Court noted in para. 41 that the only limitation on the arbitrator’s discretion under s. 20 is s.26(1) of the Act which provides “The arbitral tribunal may conduct the arbitration on the basis of documents or may hold hearings for the presentation of evidence and for oral argument: however, the tribunal shall hold a hearing if a party requests it.”
However, the Court dismissed the motion to set aside the award as the 30-day limit for a motion to contest jurisdiction under s. 17(8) of the Act had elapsed: para. 42.
The Court also held that, even if the time had not elapsed, a summary judgment motion is “a hearing” within the meaning of s. 26, having regard to the SCC’s decision in Hryniak v. Mauldin, 2014 SCC 7, which held that “the standard for fairness is not whether the procedure is as exhaustive as a trial, but whether it gives the judge confidence that she can find the necessary facts and apply the relevant legal principles so as to resolve the dispute.”: paras. 47-52
With respect to the allegation that the arbitrator relied upon paragraphs of a case other than those paragraphs argued by Tbaytel’s counsel paras.57-64, the Court held that Counsel knew that the limitation of liability issue was “live” and that the case that the arbitrator referred was in play. Therefore, the argument that Optiva had not anticipated the entire case would be read by the arbitrator had no merit.
As appeals are limited to questions of law with leave, the Court also dismissed Optiva’s leave to appeal motion on the basis that the issue of contract interpretation on limitation of liability was not a question of law but a question of mixed fact and law. The Court relied upon Sattva Capital Corp. v. Creston Moly Corp. 2014 SCC 53.
Subject to what occurs on appeal, this decision confirms that in a domestic arbitration in Ontario, an arbitral tribunal has jurisdiction to make procedural orders including that the hearing proceed by summary judgment, even if one of the party’s objects. The appeal decision will be interesting to arbitrators and counsel.
In most arbitrations, there is already a hybrid procedure in the sense that evidence in chief is usually presented by affidavit and oral examination is limited to cross-examination. Will summary judgments in arbitrations result in the cross-examinations taking place outside and hearing? The benefit of arbitration is that there is more opportunity for counsel to discuss the procedure with the arbitrator to design a process which ensures that the parties have an opportunity to present their case to the arbitrator.