ONTARIO – Arbitration – Where an arbitrator has broad powers to hear all motions and to determine the procedure to be followed in a commercial arbitration between sophisticated parties, the arbitrator has jurisdiction to determine the matter by way of a summary judgment motion. The advantages flowing from a properly invoked summary judgment process have equal application in the arbitration and the civil trial context. SEE Case #60E and Case #17D.

ONTARIO – Arbitration – Leave to Appeal – Refusal to grant leave under s. 45 of the Arbitration Act is, as a general rule, not appealable to the Court of Appeal. A refusal to grant leave will be appealable if it reflects an erroneous declining of the jurisdiction given to the Superior Court judge to grant leave under s. 45.  An application judge’s conclusion that a question raised by an Appellant involved a question of mixed fact and law, whether right or wrong, is a determination on the merits of the application for leave to appeal. That decision is not appealable to the Court of Appeal. SEE CASE #060E and Case #17D.

Optiva Inc. v. Tbaytel
2022 ONCA 646 (CanLII) (September 15, 2022)
Ontario Court of Appeal (Doherty, Huscroft and Harvison Young JJ.A.)

This was an appeal from the Order of Justice W.D. Newton refusing to set aside an arbitrator’s award pursuant to ss. 17 and 46 of the Arbitration Act, 1991, S.O. 1991, c. 17 (the “Act”). Optiva also sought leave to appeal on questions of law under s. 45 of the Act.  The Court of Appeal had earlier granted leave to appeal Newton J.’s Order.

Doherty J.A., writing the unanimous decision of the Court of Appeal, considered four issues: (para. 7)

1. Did the application judge err in holding that Optiva’s application was governed by s. 17 of the Act and that Optiva had failed to challenge the ruling that Tbaytel could proceed by summary judgment within 30 days of receiving notice of the ruling, as required by s. 17(8)?
2. Did the application judge err in holding that the arbitrator could proceed by way of summary judgment motion?
3. Did the application judge err in holding that the arbitrator did not base his interpretation of the limitation of liability clause on a legal theory not advanced by either party?
4. Did the application judge err in refusing to grant leave to appeal from the arbitrator’s interpretation of the limitation of liability clause in the contract, and/or the arbitrator’s interpretation of the arbitration agreement?

The Court of Appeal dismissed the appeal.  The most important determinations made by the Court of Appeal are that:

(1)       An arbitrator has the power to decide the case by way of a summary judgment motion, even when a party does not consent to that process, where the arbitrator’s jurisdiction includes the power to hear all motions. The considerations applicable to summary judgment in litigation are also applicable in arbitration.  A “hearing” as referred to in s. 26 of the Act does not necessarily refer to a trial with viva voce evidence. (para. 48)

(2)       There is no right of appeal to the Court of Appeal from a judge’s refusal to grant leave under s. 45 of the Act where the judge decides that the question under appeal is not a question of law. (paras. 63, 66)

Factual Background 

Tbaytel was an independent provider of telecommunication services. In June 2016, Optiva’s predecessor agreed to sell various services and software products to Tbaytel, including a new software package called “Unified 10”, for about $8.5 million. The parties expected that the project would be completed by July 2018. Problems developed and Tbaytel terminated the contract in March 2018, alleging various breaches by Optiva.

In the contract, the parties had agreed that disputes arising out of, or in connection with, the contract would be resolved by arbitration. In November 2018, the parties entered into an arbitration agreement, naming the arbitrator and describing the powers of the arbitrator.

The arbitrator ruled that Tbaytel could bring a summary judgment motion in the arbitration. He later held that some of the issues raised could be properly resolved by way of a summary judgment motion. The arbitrator ultimately concluded that Optiva had breached the contract. The arbitrator held that Tbaytel was entitled to terminate the agreement and recover monies paid out under, or in reliance on, the agreement. The arbitrator gave lengthy reasons in support of his conclusions and issued a partial award in February 2020, requiring Optiva to pay Tbaytel about $4,390,000. (paras. 1-3)

Failure to Challenge Arbitrator’s Ruling within 30 days

 Section 17(8) of the Act requires that if the arbitral tribunal rules on an objection as a preliminary question, a party may, within 30 days after receiving notice of the ruling, make an application to the court to decide the matter. [Emphasis added]

The application judge held that Optiva’s challenge to the arbitrator’s jurisdiction would be out of time if made later than 30 days but, even if it had been made in time, he would have dismissed the challenge on the basis that the arbitrator had jurisdiction to hear a motion for summary judgment and to make an award on that basis. (para. 20)

The Court of Appeal held that s.17(8) was inapplicable.  Relying on Inforica Inc. v. CGI Information Systems and Management Consultants Inc., 2009 ONCA 642, Doherty J.A. held that “the arbitrator’s decision to proceed by summary judgment was not a decision under s. 17(1) of the Act. Section 17(8) did not apply to any challenge brought to the arbitrator’s decision to proceed by summary judgment. The application was not out of time. Optiva’s application to set aside the arbitrator’s award was properly brought under s. 46 of the Act.” (para. 28)

Arbitration Summary Judgment Motion

Newton J. held that the arbitrator had jurisdiction to decide the case on a motion for summary judgment.  Doherty J.A. concluded that the application judge’s decision should be upheld on the basis that the parties were sophisticated commercial actors, who fashioned a dispute resolution process with the assistance of counsel, which implied a very limited role for judicial oversight of the conduct or outcome of that arbitration. The Court of Appeal relied on its decision in Popack v. Lipszyc, 2016 ONCA 135, 129 O.R. (3d) 321, at para. 26. (para. 29).

Doherty J.A. also recited the broad scope of powers the parties gave to the arbitrator, which included “without limitation” the broad power to hear “all motions”. (para. 30-31) The parties also agreed that the arbitrator would interpret the agreement. By doing so, the parties left it to the arbitrator to decide what powers had been given to him by the language used in the agreement.  (para. 32)

Doherty J.A. held that even though the arbitration agreement did not refer to a summary judgment procedure, the agreement referred to the arbitrator’s authority to decide on the procedures to be followed during the arbitration.  (para. 37)  The Court also held that the specific power to determine “any and all” procedural questions was a further indication that the parties intended that the arbitrator should determine the procedure to be followed in the arbitration. It is hardly surprising that the arbitrator, in exercising his power to determine appropriate procedures, would look to the procedures routinely used in civil proceedings under the Rules of Civil Procedure. (para. 38)

An important holding in this appeal is Doherty J.A.’s observation that the advantages flowing from a properly invoked summary judgment process have equal application in the arbitration and the civil trial context: see Hryniak v. Mauldin, 2014 SCC 7, para. 27.(para. 38)

In arriving at his conclusion, Doherty J.A. referred to s. 26 of the Act,  which provides that the “the tribunal shall hold a hearing if a party requests it”.  (para. 44)  Doherty J.A. noted that “hearing” and “presentation of evidence” were not defined in the Act.  Accordingly, he held that: “[t]he manner in which evidence is presented at a hearing is ultimately a procedural question. While under s. 26 a party has a right to make oral argument, that party has no right to present its evidence in a particular manner. (para. 45-48)

The Court also held that there was nothing unfair about the procedure used by the arbitrator or that Optiva was denied an opportunity to present any evidence that it wanted to present before the arbitrator or to fully challenge the case put forward by Tbaytel. (para. 50)

Arbitrator’s Determination of Limitation of Liability Clause

Doherty J.A. also considered Optiva’s argument that the application judge erred by failing to set aside the arbitrator’s award in respect of the limitation of liability provision on the basis that the arbitrator relied on a theory not advanced by the parties.  (paras. 51-58)

The Court of Appeal dismissed this ground of appeal on the basis that “[e]ven if the arbitrator’s reference to a passage from Ticketnet Corp. v. Air Canada, introduced something new to the argument, it was an overstatement to describe the arbitrator’s reference as a product of his “own legal research”, or the introduction of a “new theory” of liability and that the arbitrator was not limited to reading only the paragraphs of a case before him referred to by counsel. (para. 59)

Application Judge’s refusal to grant leave under s.45 of the Act is not appealable to the Court of Appeal. 

Doherty J.A. held that the refusal to grant leave under s. 45 of the Act is, as a general rule, is not appealable to the Court of Appeal. A refusal to grant leave will only be appealable if it reflects an erroneous declining of the jurisdiction given to the Superior Court judge to grant leave under s. 45: Denison Mines Ltd. v. Ontario Hydro (2001), 2001 CanLII 5681 (ON CA), paras. 5-8; Ottawa (City) v. Coliseum Inc., 2016 ONCA 363, paras. 23-29.  (para. 63)

The rationale underlying restrictions on appeals to the Court of Appeal from the refusal to grant leave to appeal in the Superior Court would be defeated if ONCA were to engage in an assessment of the merits of the decision refusing leave under the guise of considering whether the court below declined to exercise its jurisdiction. Under the terms of s. 45 of the Act, the question on which leave is given must be a question of law. The characterization of the issue is part of the merits of the leave application. The application judge’s conclusion that the question raised by Optiva involved a question of mixed fact and law, whether right or wrong, was a determination on the merits of Optiva’s application for leave to appeal. That decision is not appealable to this court. (para. 66)