ONTARIO – Application for Leave to Appeal of Arbitration Award – Section 45(1)-(2) of Arbitration Act – Leave to appeal refused where there were no errors of law by the arbitrator and the arbitration agreement stated that the arbitrator’s decision was final.

ONTARIO – Leave to Appeal from Arbitration Award – Even if an arbitration award produces a harsh financial result, such as a damages award for over $2 million for having contacted clients one day before the partnership agreement ended, the Court should not rehear the case where there is no error of law by the arbitrator. The arbitrator’s findings of fact are entitled to deference.

James and Farmhouse Investments Inc.
v. Fuse Strategy Partners
2025 ONSC 7209 (December 29, 2025)
Ontario Superior Court of Justice (N. Des Rosiers J.)

This was an appeal of an arbitration award that awarded damages for breach of fiduciary duty of $2,214,192.00 to the appellants James and Farmhouse and a cross-appeal by the Respondent to enforce the arbitration awards under s. 50 (1) of Arbitration Act, 1991, S.O. 1991, c. 17 (“the Act”). (para. 2)

Facts

Farmhouse and Fuse were parties to a 2021 partnership agreement. James was the only employee, guiding mind and director of Farmhouse. Fuse provided pension advice to organizations. James was the client contact partner for three large clients. Two of these clients, UCC and TEIBAS, were serviced by Farmhouse and a third, OPSEU, was serviced by both Farmhouse and Fuse. (paras. 5-7)^[1]

In November 2022, James and Farmhouse were withdrawing from the partnership but would stay for a month if they could solicit the three major clients and if not, they would leave immediately. Fuse rejected Farmhouse’s proposal but proposed an alternate consultant arrangement but no agreement was reached. (paras. 8-10)

James and Farmhouse contacted the UCC and TEIBAS clients on November 22, 2022, who decided to follow James and OPSEU took some of their business to James and left part with Fuse. (paras. 11-14)

The key issue in the arbitration was when the partnership ended, as the partnership agreement permitted James to solicit clients after the end of the partnership. The arbitrator held that the partnership ended on November 23, 2022. The arbitrator also found that by communicating with the clients one day before the end of the partnership, James breached his fiduciary duty and contractual obligations and also violated the obligation not to use confidential information. (paras. 17-18)

James and Farmhouse asked the Court to set aside the arbitrator’s finding that the partnership ended on November 23, 2022.

Issues

Justice Des Rosiers identified three issues:

• Does the court have jurisdiction to entertain Farmhouse and James’s appeal in light of the wording of the arbitration clause?
• Are there errors of law in the arbitration award that would justify the court’s intervention, pursuant to s. 45(1) of the Act?
• If so, what are the appropriate remedies? (para. 20)

Analysis

Section 45(1) of the Act provides that if the arbitration agreement does not deal with appeals on question of law, a party may appeal an award to the court on a question of law with leave, which shall only be granted if: (a) the importance of the matters at stake in the arbitration justifies an appeal; and (b) determination of the question of law will significantly affect the rights of the parties. Section 45(2) provides that if the arbitration agreement so provides, a party may appeal an award to the court on a question of law. (para. 22)

The application judge referred to Baffinland Iron Mines LP v. Tower-EBC G.P./S.E.N.C., 2023 ONCA 245, (“Baffinland”), at paras. 1-2 which explained the options available under s. 45(1) of the Act. (para. 23)

On the issue before Court, the arbitration agreement provided that “all disputes arising out of or in connection with this Agreement shall be referred to and finally resolved by a single arbitrator”. Des Rosiers J. held that the courts respect valid arbitration clauses and exercise deference to arbitrators, and that the parties should be held to the terms of their arbitration agreements, thus giving effect to the concept of party autonomy. (paras. 24-27)

The judge noted that the word “final” in the arbitration agreement meant that the parties intended that the decision of the arbitrator could not be appealed. Desrosiers J. analysed the applicable case law, including D Lands Inc. v. KS Victoria and King Inc., 2022 ONSC 1029, para. 44, which held that “if it is the intention of the parties to forgo appeal rights, the waiver of that substantive right should be clearly and unequivocally established.” (paras. 28-31)

Application Judge’s Decision

Desrosiers J. held that s.45(1) of the Act was not applicable because the arbitration agreement foreclosed the possibility of an appeal from the arbitrator’s decision. In reaching this conclusion, Des Rosiers J. considered the following factors:

• This was a comprehensive commercial partnership agreement negotiated by sophisticated parties, all of whom were represented by counsel. The arbitration clause aimed to have disputes resolved quickly and relatively inexpensively, since it provides for a single arbitrator.
• The expression “finally resolved” in the context of the entire Agreement can only be understood as an arbitral resolution with no appeal.
• It is impossible to construe the expression “finally resolved” as being in opposition to an interlocutory decision. The adverb “finally” can only mean the end of the dispute, and hence, the waiver of a right of appeal. To find otherwise would deprive the word “finally” of any meaning.
• In reaching this conclusion, Justice Des Rosiers relied on Baffinland, supra. at paras. 39-43. (paras. 39-41)

No Questions of Law

While unnecessary to dispose of the application before the court, Des Rosiers J. also held that even if s.45(1) were not foreclosed by the wording of the arbitration agreement, James and Farmhouse did not meet the 3-part test in s.45(1), referred to above and referred by Perell J. in Con Design Build Solutions Limited v. Varcon Construction Corporation, 2022 ONSC 5714, at para. 86. (paras. 43-44)

The judge noted that an error of law includes “the application of an incorrect principle, the failure to consider a required element of a legal test, or the failure to consider a relevant factor”: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, at para. 53. However, Des Rosiers J. concluded that contractual interpretation is presumptively a matter of mixed fact and law, unless there was an extricable question of law, which was not present this case. (paras. 45-46)

Des Rosiers J. concluded that the arbitrator’s finding as to the date of termination of the partnership and James’ use of confidential information were factual considerations and the alleged errors raised mixed questions of fact and law. (paras. 47-56)

No Error as to Meaning of “Solicitation”

Des Rosiers J. also held that there was no error of law in the arbitrator’s decision that James’ contact with the clients before the termination of the agreement was “solicitation”. The arbitrator’s determination involved an assessment of the evidence and a question of fact, or at best, a mixed question of fact and law. (paras. 60-62)

Harsh Result

The application judge agreed that the result of the arbitration seems harsh. Farmhouse and Mr. James argued that they were treated unfairly because the award of over $2,000,000 appears disproportionate to the wrongdoing the arbitrator found, namely discussing Farmhouse’s departure and soliciting clients for one day, when at least two of such clients were on the withdrawing clients list of November 21.

However, the harsh result did not warrant the Court departing from the tests in ss. 45(1)-(2) of the Act. In the absence of errors of law, the arbitrator’s findings were owed deference, and the court should not attempt to re-hear the case.

Editor’s Observations on Decision

The following observations are intended to raise issues for thoughtful debate and are not intended to be critical of the decisions of the arbitrator and Justice Des Rosiers.

This decision emphasizes that the Court will adhere to the principle that leave to appeal will not be granted unless the court can find an error of law by the arbitrator, even if the result appears unfair and out of proportion to the breaches found by the arbitrator, and accordingly, awards a very substantial windfall to the opposing party.

In this case, the clients James contacted had a right to decide whether they wished to stay with Fuse or move to James and Farmhouse. The clients were on a transfer list, which likely meant that they would have transferred to James upon his departure in any event. Had James contacted the clients just 24 hours later, there would have been no damages. Justice Des Rosiers noted that the result appeared harsh.

The purpose of all dispute resolution, whether in court or by arbitration, is to produce a just result. Is the result just if it produces a large windfall for one party? Is it reasonable that a party that contacts a client one day too early should have pay the other party $2 million in damages? How could Fuse have suffered $2 million in damages for a 24-hour breach?

The doctrine of commercial reasonableness holds that “courts seek to reach a commercially sensible interpretation, since doing so is more likely than not to give effect to the intention of the parties” and avoids constructions that are absurd or arbitrary: Fourth Amen Holdings Inc. et al. v. Environmental 360 Solutions (Ontario) Ltd. et al., 2026 ONSC 1551 (CanLII), at para 12; Resolute FP Canada Inc. v. Ontario (Attorney General), 2019 SCC 60 at para. 142.

What is not clear, however, and was not addressed in this decision, is whether, a result which produces a windfall and a commercially unreasonable result is an error of law. Further, could a windfall result be a penalty for which relief could be granted under s. 98 of the Courts of Justice Act, RSO 1990 c. 43? In this editor’s view, there was room for these arguments on the facts of this case.

[1] The hyperlinks to paragraphs of this decision are missing in CanLII