ONTARIO – Arbitration – Arbitration Act, 1991, s. 46 – Arbitrator’s refusal to allow amendment of pleadings to permit a claim for negligent misrepresentation just days before the pre-emptory hearing of the arbitration was not unfair or unequal treatment and was not a basis to set aside the arbitrator’s award.

Aquanta Group Inc. v. Lightbox Enterprises Ltd.
2023 ONSC 971 (CanLII)
ONSC (Akbarali J.)

This case involved an application to set aside the award of Arbitrator, the Hon. Frank. Newbould, KC, and a cross-application to enforce the Arbitrator’s procedural award and final award. (para. 1)

Background and Facts

The Applicant (“Aquanta”) was a cannabis licencee. The Respondent (“Lightbox”) provided services for the operation of six cannabis stores in Ontario. The agreement contained an arbitration clause, which provided that the arbitrator’s award “shall be final and binding on the parties and no appeals shall lie therefrom.” (para. 15) The Respondent commenced an arbitration to enforce alleged breaches of the agreement relating to the consulting fees payable. (paras. 4-5)

In October 2021, the Arbitrator made an interim award directing the Applicant to pay $271,500. The interim award was made in the absence of counsel for Aquanta, who advised that his retainer had been terminated. New counsel was retained but was unavailable on the day of the motion. It appears that the amount of the interim award was paid. (para. 9) By procedural order in January 2022, the Arbitrator rejected the request by Aquanta’s new counsel to amend its pleading to plead negligent misrepresentation on the basis that discovery was completed and the hearing of the arbitration was peremptory to Aquanta. (para. 10-11)

The arbitration hearing took place on January 10-11, 2022. The Arbitrator made a final award on the merits in favour of Lightbox. At the hearing, Aquanta attempted to argue negligent misrepresentation but the Arbitrator refused to entertain the argument. The Arbitrator’s award did not refer to negligent misrepresentation. (paras. 12-13)

Issues

Aquanta sought to set aside and reverse the Arbitrator’s award under s. 46(1)(6) of the Arbitration Act, 1991, S.O. 1991, c. 17 (“AA”) on the basis that, by failing to permit Aquanta to raise the defence of negligent misrepresentation, Aquanta “was not treated equally and fairly, was not given an opportunity to present a case or respond to another party’s case…” (para. 14)

Analysis

Referring to Mensula Bancorp Inc. v. Halton Condominium Corporation No. 137, 2022 ONCA 769, at para. 5, Justice Akbarali noted that the scope of the Court’s jurisdiction to review an arbitration award under s. 46 of the AA is narrow. It does not create a right of appeal, nor does it invite a review of the correctness or reasonableness of an arbitrator’s decision. (Para. 16). (Editor’s Note: See our November 28, 2022 summary of the Mensula case – Case #068E in this blog.)

The application judge noted that there was no issue that the Arbitrator exceeded his jurisdiction by making the procedural order denying Aquanta’s request to amend its pleadings to plead negligent misrepresentation. Rather, Aquanta argued that the Arbitrator unfairly prevented it from presenting its case or making its defence, and treated it unequally or unfairly. It also argued that the Arbitrator gave no or insufficient reasons for rejecting Aquanta’s submission that the claim for negligent misrepresentation simply arises from the oral agreement already pleaded. (para. 18)

Akbarali J. rejected Aquanta’s application to set aside the Arbitrator’s award on the following bases:

• The Arbitrator did not act unfairly or inequitably to Aquanta in accepting Lightbox’s argument on the motion to amend pleadings, which was made mere days before the pre-emptory hearing of the arbitration;
• The Arbitrator accepted Lightbox’s argument that there was insufficient time before the peremptory hearing date to present the necessary evidence on negligent misrepresentation and to hold additional discoveries; and
• Even though the Arbitrator did not cite all the evidence that could have been necessary for negligent misrepresentation, the Court considered the Arbitrator’s reasons sufficient. ( 20-27)

Justice Akbarali held that the Arbitrator answered the question that was squarely before him and gave reasons sufficient to understand why he declined to permit the amendment to the statement of defence. There was nothing unfair or inequitable in the Arbitrator’s consideration of the following:

• The need for discovery and evidence on the proposed new defence;
• The fact that the arbitration had already been adjourned once, and that the new date was peremptory to Aquanta; and
• The fact that mere days remained before the peremptory arbitration was scheduled to start. ( 28)

Justice Akbarali concluded that the Arbitrator did not treat Aquanta unfairly or unequally and did not deny Aquanta an opportunity to advance its case. The Court refused to speculate on what the result might have been if the negligent misrepresentation arguments had been advanced before the Arbitrator. (para. 29)

The application was dismissed and the cross-application enforcing the Arbitrator’s award was granted with costs to the successful party.

Editor’s Note:

Section 19 of the Arbitration Act, 1991 provides:

(1) In an arbitration, the parties shall be treated equally and fairly.

(2) Each party shall be given an opportunity to present a case and to respond to the other parties’ cases.

There are many cases that refer to s. 19 but there is no explicit test or set of parameters to determine whether an arbitrator has met the standard required by the section. This editor’s CanLII search for a judicial interpretation of the term “treated fairly and equally” produced no illuminating results. It seems that being “treated fairly and equally” is the essence of justice and judges know when they see it or when it is not present.

On another topic, the parties to this arbitration were involved in another application to the Court concerning this dispute. As reported in this blog in June 2022, in Aquanta Group Inc. v. Lightbox Enterprises Ltd. 2022 ONSC 3036, Justice Morgan held that on a second arbitration between the same parties, a different arbitrator should be appointed unless there was a compelling reason to reappoint the first arbitrator. As that matter was apparently moot or no longer relevant, it is not mentioned in Akbarali J.’s decision.