ONTARIO – Arbitration – Application to set aside arbitral award under Arbitration Act, 1991, s. 46(1)6. –Where an arbitration agreement provides that the arbitral award is final without right of appeal even as to questions of law, the ambit of the Court’s right to set aside the award is limited to ensuring that both parties were treated equally and were given a right to present their case and respond. The Court will not review the correctness or reasonableness of the arbitral award.
ONTARIO – Arbitration – Adequacy of Arbitrator’s reasons – Arbitration Act, 1991, s. 38. The critical question is whether in the context of the record, the issues and the submissions of the parties, the reasons are sufficiently intelligible to show that the arbitrator understood the substance of the matter and addressed the necessary and critical issues.
Grant et al v Seaway Auto Group Inc. et al.
2023 ONSC 3873 (CanLII), (June 28, 2023)
Ontario Superior Court of Justice (P. Hurley J.)
The parties were the shareholders of an auto dealership in Cornwall, Ontario. They had a shareholders’ agreement with an arbitration clause that provided that the arbitrator’s decision was final and binding and not subject to an appeal.
The claims and counterclaims alleged breaches of fiduciary duty and breach of contract. They appointed an arbitrator, who heard the arbitration over the course of three weeks in May 2002 and issued a lengthy, written award in November 2022.
The arbitrator held that the Applicants, who were 49% minority shareholders, wrongfully interfered with the operation of the dealership by various obstructive acts and thereby failed to act in the best interests of the business; contravened the shareholders’ agreement; breached their fiduciary duties; and breached their duty of care as directors. The arbitrator awarded damages of $348,278.73 for impairment of goodwill and lost revenue and dismissed the counterclaim. The arbitrator also awarded costs of more than $300,000.00 to the successful party, including the majority shareholder. (paras. 7-9)
The Applicants applied to set aside the arbitral awards under s. 46(1), item 6 of the Arbitration Act, 1991 (“the Act”) on the basis that they were not treat equally and fairly, and were not given an opportunity to present their case and respond to the other party’s case. They also claimed that the arbitrator’s reasons were insufficient, contrary to s. 38 of the Act. The specific complaints about the arbitral award were:
- In determining the damages for impairment of goodwill, the arbitrator relied on out-of-date financial information and accepted opinion evidence she should not have and did not explain the quantification of the damages;
- As to the damages awarded for loss of revenue, the arbitrator did not explain why she rejected the applicants’ submission that the correct measure of damages was loss of profit; and
- The Arbitrator did not allow the applicants to call one of their proposed witnesses, Neil Puri. ( 11-12)
Justice P. Hurley refused to set aside the arbitral awards and dismissed the application. Relying on the ONCA’s decision in Tall Ships Developments Inc. v. Brockville (City), 2022 ONCA 861, paras. 2-3 (summarized in this blog as Case #070E) and Aquanta v. Lightbox Enterprises Ltd, 2023 ONSC 971 at paras. 16-17 (summarized in this blog as Case #079E), the application judge held that it was not the Court’s role to review the correctness or reasonableness of the arbitrator’s decision nor to engage in a substantive review of it. (paras. 16-17)
As to the arbitrator’s obligation to treat parties equally and fairly, the application judge relied on Nasjjec Investments Ltd. v. Nuyork Investments Ltd., 2015 ONSC 4978 at paras. 38-40 for the proposition that the right to a fair hearing is an independent and unqualified right. Arbitrators must listen fairly to both sides, give parties a fair opportunity to contradict or correct prejudicial statements, not receive evidence from one party behind the back of the other, and ensure that the parties know the case they have to meet. An unbiased appearance is, in itself, an essential component of procedural fairness.
While the requirements of natural justice extend beyond the basic principles set out in the Act, it is important to remember that an arbitration is a more informal process than a court proceeding. Furthermore, it is usually final. In such circumstances, the issues of fairness and equality must be considered having regard to the context of the proceeding. Furthermore, it is important to ensure that the integrity of the arbitration process is maintained. However, s. 46(1) of the Act does not provide “a do-over to protect a party from its own choices.” (paras. 17-19)
The application judge distinguished Alberta Cricket Association v. Alberta Cricket Council, 2021 ONSC 8451, at para. 54 (summarized in this blog as Case #029D), where Perell J. set aside an arbitral award on the basis of inadequacy of reasons. Hurley J. held that the arbitrator considered all the evidence and made a decision. It was open to the arbitrator to decide as she did. Even if another arbitrator might have decided the case differently, that was not a basis for setting aside the award. (paras. 20-26)
The application judge also referred to Orion Travel Insurance Co. v. CMN Global Inc., 2023 ONSC 1527, at paras. 40-42, (summarized in this blog as Case #083M) where Morgan J. held that the question is whether, in the context of the evidentiary record, the arbitrator’s reasons for decision were sufficient to show that the arbitrator understood the substance of the matter and addressed the key issues. The question is one of intelligibility, not exhaustiveness or eloquence of expression. (para. 28)
The application judge held that while the arbitrator’s reasons were succinct, they did explain why she reached her conclusion on the damages caused by the applicants’ wrongful conduct. (para. 30)
The applications were dismissed and the arbitral awards were not set aside.