ONTARIO – Arbitration – Court’s right to interfere with an arbitrator’s award under s. 46(1)3 of the Arbitration Act, 1991, S.O. 1991, c. 17 (the “Act”) is limited to whether the arbitrator had jurisdiction to decide the matter.  Where the application judge finds that an arbitrator had jurisdiction to interpret an agreement, and did so, the role of the court under s. 46(1)3 of the Act is at an end, and it is irrelevant whether the interpretation was correct or reasonable.

Mensula Bancorp Inc. v. Halton Condominium Corporation No. 137
2022 ONCA 769 (CanLII)
ONCA (Benotto, Zarnett and Copeland JJ.A.) November 10, 2022

This was an appeal from the decision of Justice Marie-Andrée Vermette (2021 ONSC 2575) setting aside an arbitration award under s. 46(1)3 of the Act on the basis that the arbitrator exceeded his jurisdiction by “in effect” amending a condominium declaration rather just interpreting its meaning.  The ONCA, (Zarnett J.A., writing for the Court) allowed the appeal because Vermette J. proceeded on a basis that s. 46(1) of the Act does not permit. (para. 6)

Background and Arbitrator’s Award

The dispute concerned access to 43 parking spaces in an 82-unit residential condominium building in Oakville, Ontario. The parking spaces were owned by Mensula for its employees, who worked at a nearby building outside the condominium.  The condominium corporation (“HCC137”) denied keys to an entrance that would give more convenient access to the parking spots because to do so would give the non-resident Mensula parkers access to the lobby and hallways of the residential building. (paras. 8-13)

The parties were required to take their dispute to arbitration in accordance with s. 132(4) of the Condominium Act, 1998 and HCC 137’s By-law No. 6. The parties proceeded to arbitration before Arbitrator Leslie Dizgun, who described the parties’ position as involving the interpretation of the condominium declaration. The arbitrator rejected HCC 137’s argument that the hallways and lobby were for recreational purposes, but he also concluded that Mensula was not entitled to the access it claimed.  (paras. 16-21)

The arbitrator then proceeded to search for a reasonable interpretation of the condominium declaration, applying the interpretative principles in Sattva Capital Corp v. Creston Moly Corp., 2014 SCC 53, and interpretations to promote harmonious relationships in the community. The arbitrator ultimately concluded that an interpretation of the declaration that gave Mensula access only through the east end stairwell “accords with a common sense and reasonable interpretation of the [d]eclaration in its context and given the surrounding circumstances at the formation of the [d]eclaration.” Finally, the arbitrator held that even if Mensula was entitled to access through the common elements, its tenants were not, given the language of the declaration. At no point did the arbitrator expressly say he was correcting or amending the declaration.  (paras. 23-27)

Application Judge’s Decision

Vermette J. noted that the parties agreed to arbitrate “all issues in dispute” but she held that the arbitrator’s jurisdiction was limited by section 1.1 of HCC137 By-law No. 6 and by Condominium Act, 1998, s. 109  to an interpretation of the condominium declaration, not to an amendment or correction of it, which had to be resolved by a court, not an arbitrator. (paras. 29-31)

The application judge held that the effect of the arbitrator’s award was to broaden the scope of the condominium declaration by correcting inconsistencies. Vermette J. held that in so doing, the arbitrator crossed the line by “in effect” making “unregistered corrections and amendments to the condominium declaration”. On that basis, Vermette J. set aside the arbitrator’s award. (paras. 32-34)

Court of Appeal’s Analysis

Zarnett J.A. disagreed that the arbitrator amended the declaration. The arbitrator did not state that he was amending the declaration.  Zarnett J.A. noted that, on the contrary, the arbitrator defined the issue before him as one of interpretation and instructed himself on interpretive principles and on the statutory limit of reasonableness. (para. 38)

Referring to Alectra Utilities Corporation v. Solar Power Network Inc., 2019 ONCA 254, Zarnett J.A. pointed out that the Court’s power of review of an arbitral award under s. 46(1)3 of the Act is limited to review of a jurisdictional error. (para. 40)

Where the reviewing judge finds that an arbitrator had authority to interpret an agreement, and did so, the role of the court under s. 46(1)3 of the Act is at an end, and it is irrelevant whether the interpretation was correct or reasonable. (para. 42)  Zarnett J.A. therefore held that the application judge erred in proceeding to superimpose a different characterization of what the arbitrator did – calling it “in effect” an amendment – by reviewing the substance of the arbitrator’s award and considering whether a proper interpretive analysis could justify it.

Zarnett J.A. further noted that even though “the arbitrator’s analysis did not stop at the text but considered and used the surrounding circumstances, the purpose and meaning of the declaration as a whole, the avoidance of absurdity, and the intention of the parties were not departures from the interpretive process; they were steps in that process. Of course, there can be right and wrong ways of applying those interpretive principles. As the application judge pointed out, there are limits on the use of surrounding circumstances. But whether the principles and factors involved in an interpretation were applied correctly, or reasonably, is beside the point of whether the decision maker has engaged in interpretation.” (para. 50)

Accordingly, the ONCA allowed the appeal, set aside Vermette J.’s Order, and restored the arbitrator’s award.

Editor’s Note:

Although the ONCA held that the scope of the Court’s review under s. 46(1)3 is limited to a finding that the arbitrator had jurisdiction to decide the matter before them, and that the correctness or reasonableness of the decision were irrelevant, it does leave some open questions.

In the present case, Zarnett J.A. set out in detail the process the arbitrator used to arrive at an award interpreting the condominium declaration. Zarnett J.A. referred to matters the arbitrator took into consideration, including the application of interpretive and statutory principles.

The arbitrator’s analysis was thorough and responsible and arrived at a reasonable result with which Zarnett J.A. agreed. One wonders if the result would have been different if the arbitrator failed to consider the issues as judiciously as this arbitrator did.  In that circumstance, it is conceivable that the argument to set aside the award may have been made on a different basis before the application judge and the ONCA, and a different conclusion may have been reached.