ONTARIO – Arbitration Agreement valid despite not specifying a “seat”. Court directs the arbitrator to determine the applicable procedural law for the arbitration.

Magna International Inc. v Granite Real Estate Inc.
2022 ONSC 2200 April 8, 2022
Superior Court of Justice- Commercial List (Myers J.)

The applicant sought an order appointing an arbitrator to determine rent under a lease. The respondent opposed the appointment on the basis that the arbitration agreement was invalid.

Justice Myers held that generally jurisdictional issues are to be resolved initially by the arbitrator. Myers J. referred to Trade Finance Solutions Inc. v. Equinox Global Limited, 2018 ONCA 12 (CanLII) in which the ONCA said in cases where the “existence or validity of the arbitration agreement” is not clear (i.e. the agreement is arguably, but not clearly: (a) null and void; (b) inoperative; or (c) incapable of being performed) it is preferable for the arbitrator to decide the issue: Dalimpex Ltd. v.Janicki, (2003), 2003 CanLII 34234 (ON CA), 64 O.R. (3d) 737 (Ont. C.A.), at paras. 21-22. (para. 14)

In this case, an arbitrator had not been appointed and the respondent took the position that the arbitration agreement was invalid. The court had jurisdiction to decide the issue, or it may appoint an arbitrator to decide the issue. Myers J . referred to Electek Power Services Inc. v. Greenfield Energy Centre Limited Partnership, 2022 ONSC 894 (CanLII), (para. 15) where Perell J. held that in the context of a stay application the court may decide that the arbitrator may or has jurisdiction to decide the dispute and to decide about his/her jurisdiction and stay the action. (Editor’s Note: See Case #038E in this blog)

Myers J. stated that the Trade Finance case provides guidance being, if the issue is clear the court can decide it and if it is not clear, the court should defer the issue to the arbitrator to respect the forum selected by the parties. (para.17)

The dispute resolution clause in the lease states:

“If the parties cannot agree on the fair market rent at least six (6) months prior to the commencement date of the applicable renewal term, such rent may be referred to arbitration pursuant to the applicable AAA (as defined herein) rules for arbitrations in force at the time of such reference, by written notice by either the Landlord or the Tenant, to a single accredited property appraiser agreed by the Landlord and the Tenant. If the Landlord and the Tenant fail to agree on such property appraiser within ten (10) days of such written notice, then either the Landlord or the Tenant may apply to a single judge in the jurisdiction in which the Leased Premises are situated to appoint such arbitrator. Such arbitrator shall hold a hearing within ten (10) days of his/her appointment to determine the fair market rent, shall determine the fair market rent within thirty (30) days of such hearing, and shall apportion the costs of the arbitration in his/her sole and unfettered discretion. The decision of the arbitrator shall be final and binding on the Landlord and the Tenant, without appeal on a question of law, fact or otherwise.”

The issue was the arbitration clause mandatory. Myers J. held that “the modern view is to interpret clauses to fulfill the parties’ intention to resolve their dispute by arbitration where the words support that intention.” (para. 21)

Although the arbitration clause did not set out the laws of the arbitration or seat, Myers J. held that the identification of the applicable procedural law is a question for the arbitrator. The agreement to arbitrate was held to be valid and upon delivery of a consent from the arbitrator that the arbitrator is willing to act the order will be made to appoint the arbitrator.