ONTARIO – Arbitration – Leave to Appeal – There are limited avenues of appeal from an arbitral award under section 45(1) of the Arbitrations Act, 1991. That section only applies where the arbitration agreement does not deal with appeals on questions of law. Leave shall only be granted if the court is satisfied that the matters at stake are of such importance to the parties to justify an appeal, and that the determination of the question of law will significantly affect the rights of the parties. 

ONTARIO – Arbitration – Failure to Give Reasons – An arbitrator’s failure to give reasons on an issue raised a question of law where those reasons could not be discerned from the record before the arbitrator. 

ONTARIO – Damages – Punitive Damages and the Oppression Remedy – The concepts of punitive damages and oppression remedies are not interchangeable – they serve different purposes at law. Punitive damages are awarded to deter high-handed, malicious or reprehensible conduct. The purpose of the oppression remedy is to compensate a minority shareholder for unfair or other wrongful conduct by the majority based on the claimant’s “reasonable expectations” as a shareholder. 

Reed v. Cooper-Gordon Ltd. et al, 2023 ONSC 5261 (CanLII)
 2023 ONSC 5261 (September 19, 2023)
Ontario Superior Court of Justice (Emery J.)

Reed brought a motion seeking leave to appeal the Arbitrator’s decision under section 45(1) of the Ontario Arbitrations Act, 1991 (the “Act”).

Reed was a former employee and a minority shareholder of the defendant CGL. Reed held his shares through his holding company, Creekside. Creekside was issued 12% of the shares in CGL along with enhancements to Reed’s employment compensation in 2012. (para. 2)

The application for leave to appeal arose from the orders the Arbitrator made concerning:

• The amount of pay in lieu of notice (six months versus 24 months the Applicant sought) for termination;
• Unpaid bonuses and the employer’s contribution to the Applicant’s RRSP, which the Applicant claimed did not consider his claims from 2016 to 2019 and a corrected calculation of bonuses and RRSP contributions for 2020;
• The valuation and percentage of the CGL shares Reed held through Creekside;
• Variation of the fair market value of the shares in CGL Reed held CGL Creekside;
• The Arbitrator’s dismissal of the punitive damages claim for shareholder oppression as well as for the defendants’ conduct;
• Variation of the costs award; and
• In the alternative, the Applicant sought a new arbitration under s. 46 of the Act because of the Arbitrator’s alleged unfairness towards him.

The Respondent opposed the motion.

Background

Reed gave notice to CGL in September 2018 that he intended to leave the company. The Court found that it “would appear that this destabilized his continued employment with CGL. His employment effectively came to an end on June 9, 2020.” (para. 3)

An action was commenced in May 2020 for unpaid bonuses and CGL’s share of contributions to Reed’s RRSP under his employment agreement. Reed also claimed punitive damages for “shareholder oppression” and unconscionable conduct. (para. 4)

Mossip J. granted an order on September 9, 2021 for the parties to litigate Reed’s claims through arbitration. The parties were bound by a shareholder’s agreement in which they agreed to resolve any dispute by arbitration. That order also appointed the Arbitrator and set terms for the arbitration, including that the Arbitrator’s decision would be final and not subject to appeal. (para. 5)

After entering into the arbitration agreement, the parties agreed to Partial Minutes of Settlement in November 2021. The recitals to the Minutes contained acknowledgements that Reed held a 12% interest in CGL and that all parties wanted Reed’s shares retracted by CGL. (para. 14) The Partial Minutes of Settlement also mandated that the Arbitrator use August 31, 2020 as the valuation date for the shares. (para. 15)

Following release of the Arbitrator’s decision on March 31, 2022 and the costs decision on July 28, 2022, Reed brought a motion for leave to appeal. In advance of the hearing of the within motion, the Respondents brought a motion to strike certain documents Reed had uploaded to CaseLines. The Court noted that one of the challenges on the leave motion was that there was no record of evidence given at the arbitration and no documents were marked as exhibits as a result of the parties’ prior agreement that evidence at the arbitration hearing “shall not be recorded by court reporter”. (paras. 7-8)

Analysis

The Court noted that under section 45(1) of the Act, there are limited avenues of appeal from an arbitral award. The section only applies where the arbitration agreement does not deal with appeals on questions of law. Leave shall also only be granted if the court is satisfied that “the matters at stake are of such importance to the parties to justify an appeal, and that the determination of the question of law will significantly affect the rights of the parties.” (paras. 18-19)

The parties did not dispute that the onus of meeting the requirements of s. 45(1) fell on Reed as the party who sought leave. (para. 21)

The Court applied the principles from the Supreme Court of Canada’s decision in Teal Cedar Products Ltd. v. British Columbia, 2017 SCC 32 and the Ontario Court of Appeal’s decision in Tall Ships Development Inc. v. Brockville (City), 2022 ONCA 861 in finding that its role as “the gatekeeper” is to “accept or deny any issue that meets the requirements of raising a question of law having sufficient importance and significance to the parties to justify an appeal.” (paras. 23-27)

Justice Emery then proceeded to assess whether each of the issues upon which Reed sought leave raised a sufficient question of law, finding as follows:

• The “route” the Arbitrator took to arrive at the same place in awarding six months pay for wrongful dismissal did not raise a question of law. The Arbitrator reached a reasonable conclusion based on the evidence. “[I]t is the Order from which an appeal may be taken, not the reasons for arriving at the Order made. It follows that the same consideration applies on a motion for leave to appeal.” (paras. 31-33) The Court did however grant leave to appeal to allow the appellate court to correct a mathematical error in the Arbitrator’s statement that the notice period was six months. It would be unreasonable to allow the Arbitrator’s error not to count the seven months between Reed’s start date and end date to calculate his damages for notice. The Court found that a difference of a month’s pay could be significant to the parties and of sufficient importance to justify an appeal on that point. (para. 34)
• The Arbitrator’s failure to give reasons for why they did not address Reed’s claims for unpaid bonuses and RRSP contributions for the years 2016-2019, where those reasons could not be discerned from the record, raised a question of law. The Court also found that this question of law would significantly affect the parties’ rights.
• The issue of the valuation and shareholdings percentage of Reed was one of either fact or mixed fact and law. The Court found no question of law in respect of that issue on the record. The Court held that “[i]t would be difficult, if not impossible to extricate a relevant legal question from the factual matrix in this case”. [paras. 45-46]
• Reed was entitled to appeal the Arbitrator’s decision dismissing either the punitive damages or oppression remedy claims. (para. 48) “The concepts of punitive damages and oppression remedies are not interchangeable, and serve different purposes at law.” (para. 49) Punitive damages are awarded in the face of “high-handed, malicious or reprehensible conduct that stands as a marked departure from ordinary standards” and their purpose is not to compensate the plaintiff for an injury but to instead “give that plaintiff some measure of retribution and to deter the defendant or any other party from similar behavior”. None of the circumstances that warrant punitive damages were found in the record to raise a question of law or justify leave as a matter of some importance. (paras. 51-52) The oppression remedy, in contrast, is compensatory in nature. The purpose of the oppression remedy is to compensate a minority shareholder for unfair or other wrongful conduct by the majority based on the claimant’s “reasonable expectations” as a shareholder. (para. 53) The Court held that there was nothing in the record to refute the Arbitrator’s findings that there was no egregious behaviour or conduct. “This was a finding of fact that this court has no jurisdiction to disturb.” The Court held that there was “no question of law on which to assess the importance of the question or whether the determination of it would significantly affect the rights of the parties.” (para. 54)
• Given its findings under s. 45(1), the Court held that it was not necessary to address the claim for relief under s. 46 of the Act to obtain a re-hearing of the arbitration. However, the Court also found that there was nothing in the Arbitrator’s decision to suggest that they did not treat the parties fairly to support a new hearing under s. 46. The Court also quoted the “instructive words of Harvison-Young J.A. in Tall Ships, where she stated emphatically that s. 46 cannot be used as a broad appeal route to ‘bootstrap’ substantive arguments used to attack an arbitrator’s findings.” (para. 56)

Leave to appeal was granted for only the issue of the one month difference in the notice period for the wrongful dismissal claim and the issue of whether the Arbitrator addressed Reed’s claim for unpaid RRSP and bonuses. The remainder of the motion was dismissed. (para. 57)