ONTARIO – Arbitral award set aside as the parties did not grant the Arbitrator express authorization to determine the disputes between them. In arbitrations under the Ontario Arbitration Act, 1991  S.O. 1991, c.17 (“Act”) or the Model Law (UNICITRAL Model Law on International Commercial Arbitration), the Tribunal may decide “ex aequo et bono, or as amiable compositeur” only in circumstances where the parties have expressly authorized it to do so.

1107051 Ontario Ltd. v. GG Kingspa Enterprises Limited Partnership
2022 ONSC 1847 March 25, 2022
Superior Court of Justice  (McEwen J.)

The Applicant brought an application to set aside an Arbitral decision in which the arbitrator assumed jurisdiction over a dispute between the parties involving a real estate development.

The parties entered into an extensive Co-tenancy Agreement (“Agreement”) with respect to acquiring ownership, developing, servicing, and managing a mixed-use land development project.

Article 11.4 of the Agreement (para.11) contained a broad arbitration clause (the “Arbitration Clause”) which provided, amongst other things, the following:

“Whenever and wherever a dispute arises under this Agreement including, without limitation, whether an Event of Default as defined in this Agreement exists, (collectively, a “Dispute”) it shall be resolved by arbitration.”

The Agreement did not define the term “dispute”. The management of the project and  Agreement was delegated to a Management Committee with two members from each side. Unanimity was required for decision making. (paras. 6-7)

The Management Committee was in deadlock about whether or not the development should include a hotel.

The Respondent commenced an arbitration and asserted that the Agreement at Article 5.6 set out the standard by which disputes be resolved being, “the best interests of the Project” (para.14). The Applicant disagreed that the dispute fell within the scope of the Arbitration Clause as the parties did not agree that the Arbitrator would resolve deadlock within the Management Committee or make business decisions on their behalf. (para.15)

The Arbitrator found that he had jurisdiction to decide the dispute without considering the merits. The Arbitrator held that even though the dispute was not legal and was a business-related dispute, it was a dispute under the Agreement as the Arbitration Clause was broadly worded. The Arbitrator also held that even though the term dispute was not defined the Arbitration Clause, the wording of the clause included disputes under the Agreement “without limitation.” (paras. 17-18).

The standard of review of an Arbitrator’s jurisdictional decision is correctness. McEwen J. referred to, Housen v. Nikolaisen, 2002 SCC 33,[2002] 2 SCR 235, at para 8; Hornepayne First Nation v. Ontario First Nations (2008) Ltd.,2021 ONSC 5534, at paras. 1-6. (para.20)

Justice McEwen held that the Court did not have authority to refer the case back to the arbitrator to determine both jurisdiction and merits. (para.28). The law is settled that the Court does not have inherent jurisdiction where jurisdiction is conferred on the Court by statute. (para.29)

Section 46(8) of the Act allows the court to refer an award back to the Tribunal, but the section does not apply to a jurisdiction decision made pursuant to section 17(7) of the Act, which allows the Tribunal to deal with jurisdiction as a preliminary question. McEwen J. referred to Inforica Inc. v. CGI Information Systems and Management Consultants Inc., 2009 ONCA 642, 97 O.R. (3d) 161, at para. 29 for the proposition that “award” means the ultimate decision on the merits and not any decision of the Tribunal. (para.31)

Justice McEwen agreed with the Arbitrator that the dispute was non-legal and that parties can arbitrate non-justiciable disputes if they clearly and specifically intended to do so. The Court found that given the broad wording of the Arbitration Clause the parties could arbitrate a non-legal dispute. (para.55)

The Agreement stated that the dispute must arise under the Agreement pursuant to Article 11.4. McEwen J. held that the dispute did not arise under the Agreement. The Agreement did not indicate that the parties intended that fundamental development plans be subject to the Arbitration Agreement. (para.57) and (para.58)

The parties created an Agreement that required unanimous decision making with the potential that a deadlock could result, and as such the parties got what they bargained for, a deadlock that could not be resolved by arbitration. (para.63)

McEwen J. then considered the concept of a Tribunal settling a dispute by “amiable composition or equity and good conscience” and referenced J. Brian Casey’s text, Arbitration Law of Canada, 3^rd ed where Casey said at pages 7-8.

“A tribunal hearing a matter under amiable composition may disregard the strict legal rights and duties of the parties and determine the matter on what appears right and just in the circumstances. This does not allow the tribunal to ignore the contract between the parties , but it does allow the tribunal to disregard the rigours of the law, where to apply it would be in a general sense unfair.” (para.69)

In the case of arbitrations under the Act and the Model Law (UNICITRAL Model Law on International Commercial Arbitration) Justice McEwen agreed with Mr. Casey that, only if the parties have expressly authorized the tribunal to decide the dispute “ex aequo et bono or as amiable composituer” could the tribunal decide on this basis. McEwan J. held that the parties did not expressly provide the Arbitrator with jurisdiction and authority to decide the dispute between them regarding the configuration of the development and whether or not it should include a hotel.

Editor’s Comment

The terms “ex aequo et bono” and “amiable compositeur” are referred to in international commercial arbitration but are probably not universally understood.   To assist the reader’s understanding:

• The term ex aequo et bono is Latin for “according to the right and good “ or “from equity and conscience” . If authorized by the parties, it permits the tribunal to dispense with consideration of the law and make the decision based upon equitable and fair considerations.
• The term amiable compositeur is a French term and permits the tribunal to decide a dispute according to justice and fairness.
• A tribunal is required to decide the dispute in accordance with the rules of law the parties choose which will determine the parties’ substantive rights and obligations. If there is no designation of the law , the tribunal must apply the laws determined by the conflict of law rules it considers applicable. If the parties expressly authorise the tribunal, the tribunal must make a decision ex aequo et bono or as amiable compositeur. (See Annotated Ontario Arbitration Legislation-Arbitration Act,1991 and International Commercial Arbitration Act, 2017, 3^rd Alexander Gay and Alexandre Kaufman, Thomson Reuters, pages 689)
• Article 28(3) of the UNICITRAL Model Law, incorporated into the Ontario ICAA states that “ the arbitral tribunal shall decide ex aequo et bono or as amiable compositeur only if the parties have expressly authorized it to do so.”
• There is no corresponding provision in the Ontario Arbitration Act, 1991 except for section 31 which states “an arbitral tribunal shall decide a dispute in accordance with law, including equity.
• Although the parties could expressly agree to grant the tribunal ex aequo et bono or as amiable compositeur decision making, this rarely occurs.

More information on the concepts of “ex aequo et bono” or “amiable compositeur” can be found in Arbitration Law of Canada: Practice and Procedure by J. Brian Casey and Janet Mills. (Juris Publishing Inc.)