ONTARIO – An application to set aside an arbitrator’s decision as to jurisdiction on the basis that there was no arbitration agreement is a hearing de novo not an appeal.—There is no binding arbitration agreement where there was no meeting of the minds of the parties to arbitrate.— Where a Court sets aside an arbitral award on the basis that there was no arbitration agreement, section 17(9) of the Arbitration Act, 1991 is inapplicable and there is a right of appeal.

Electek Power Services Inc. v. Greenfield Energy Centre Limited Partnership
2022 ONSC 894 , February 8, 2022
Ontario Superior Court, P.M. Perell J.

Justice Perell decided an application by Electek pursuant to s.17(8) of the Arbitration Act, 1991 (“the Act”) to set aside a “preliminary question” decision by a three-arbitrator panel, composed of, Earl A. Cherniak Q.C., William G. Horton, and J. Brian Casey. As an answer to a preliminary question, the arbitrators decided that they had jurisdiction to decide the dispute between Electek and Greenfield.

The factual background is set out by Justice Perell in paras. 37-92 of the decision. The dispute concerned a $10 million claim for damages arising out a contract for goods and services by Electek to Greenfield’s electric power plant in Sarnia, Ontario.

Relying on the Divisional Court’s decision in The Russian Federation v. Luxtona Limited
2021 ONSC 4604 (reviewed in this blog as Case #001E on October 5, 2021), para. 22, Perell J. held that the application to set aside the arbitral tribunal’s preliminary decision was not an appeal but a hearing de novo: para. 21-22.

Justice Perell set aside the arbitral tribunal’s preliminary decision on the basis that “in accordance with the objective theory of contract formation and having regard to the words and conduct of Greenfield and Electek and the contractual/factual nexus in 2009 or in 2018, there was no arbitration agreement contracted for between Greenfield and Electek.” Therefore, Justice Perell held that the arbitral tribunal had no jurisdiction: para. 210.

Justice Perell referred to the following legal principles affecting the jurisdiction of an arbitrator:

1. As the Court of Appeal held in Secure Solutions Inc. v. Smiths Detection Toronto Ltd. 2011 ONCA 337at para. 4, an arbitration agreement must exist for the arbitrator to have jurisdiction: 142;
2. As the Supreme Court of Canada held in Uber Technologies Inc. v. Heller, 2020 SCC 16, aff’d 2019 ONCA 1, rev’g 2018 ONSC 718, the arbitration agreement must be legal for the arbitrator to have jurisdiction: 145;
3. Section 17(2) of the Act provides that an arbitration agreement is independent from an agreement in which it may be imbedded: 147. On this point, Justice Perell held that “since an arbitrator’s jurisdiction is commensurate with the authority granted by an arbitration agreement, there must be a legally enforceable arbitration contract covering the subject matter of the dispute. An arbitration agreement may be a free-standing agreement, or it may be embedded in another agreement, but in either case, it must be a validly formed agreement.”: para. 156.

Justice Perell noted that, as this application was a hearing de novo, it was open him to ignore the arbitral decision. However, the decision devotes several paragraphs explaining why Justice Perell considered that the arbitrators’ decision was incorrect: paras. 163-174.

Justice Perell then embarked on a detailed analysis of the facts of the relationship between Electek and Greenfield to determine whether there was a binding arbitration agreement: paras. 175-208.

Justice Perell held that this case is similar to the Secure Solutions Inc. case where the Court of Appeal held that “it was simply not arguable that there was a meeting of minds between the parties that their disputes would be arbitrated. If there is no arbitration agreement contracted for at the relevant time, that ends the matter.”: para. 208.

In Justice Perell’s opinion, s.17(9) of the Act, which prohibits appeals on a court’s determination of an arbitrator’s jurisdiction, is not applicable because the Court held that there was no arbitration agreement in effect: para. 24-25.

Editor’s Note

The above paragraphs summarize Justice Perell’s decision, but it would not do “justice” to Perell J.’s decision to stop here. In this decision, Justice Perell addressed many aspects of arbitration law and procedure which are of interest to arbitrators and arbitration counsel and may be found at the following paragraphs of Perell J.’s decision.

• Jurisdiction of arbitrators and the formation of an arbitration contract: 93-107.
• Procedural jurisdiction to determine the arbitrator’s jurisdiction: 108-130.
• Stay motions: 110-115.
• Declarations and Injunctions pursuant to s. 48 of the Act: 116-117.
• Application for Interpretation under Rule 14.05(3)(h): 118-119.
• Appointment of Arbitrators under s.10 of the Act: 120-121.
• Application under s. 17(8) of the Act: 122-125.
• Application under s. 46 of the Act: 126-127.
• Appeals under s. 45 of the Act: 128-130.
• Competence-Competence Principle: 131-137.
• Substantive Law about the Jurisdiction of Arbitrators to Decide Disputes: 138-162.
  • The Arbitration Act, 1991: paras 138-141.
  • The Existence of an Arbitration Agreement: 142-144.
  • The Legality of the Arbitration Agreement: 145-146.
  • The Independent Agreement Principle: 147-156.
  • The Interpretation of Arbitration Agreements: 157-162