Alberta – Arbitrator not functus for issuing consent award after party denied settlement – #844

In Caroll v Caroll, 2024 ABKB 227, the Court found that the Arbitrator was not functus officio for issuing a Consent Award after a settlement was reached in a med-arb process.  One party denied the settlement but argued that, in any event, the Arbitrator’s jurisdiction was over after the settlement agreement and it was improper to “crystallize” the agreement into the Award. The Court dismissed this argument and found that there was a settlement. And the process was not unfair. The Arbitrator did not “conflate” the mediation and arbitration phases of the proceeding by terminating the proceeding after the settlement agreement rather than proceeding to arbitration once one party denied the settlement.

The issues – The Applicant (“Wife”) applied to enforce a Consent Award on the basis that it recorded the terms of a comprehensive settlement agreement between the parties during a mediation-arbitration process. The Respondent/Cross-Applicant (“Husband”) sought permission to appeal the Award. He contended that there was no settlement agreement and that the Arbitrator had erred in law because (in part):

(a) Even if an agreement was reached during mediation, the Arbitrator was functus officio afterwards and did not have the jurisdiction to hear Wife’s application to issue the Award, which she brought to the Arbitrator after Husband denied the settlement;

(b) The Arbitrator conflated the arbitration and mediation phases of the process and therefore erred in law; and

(c) Husband was not provided with the opportunity to advance his evidence and argument, which violated principles of natural justice and procedural fairness. He wanted to be permitted to adduce fresh evidence on the appeal, if leave was granted, as the record of the arbitration was is not sufficient for a proper hearing on the merits.

The Court found that it was required to make a finding as to whether the parties had reached an agreement, and allowed each party to file an Affidavit.

Background facts – The parties entered into a Mediation/Arbitration Agreement and booked various dates for the mediation, the last of which were on September 11 and 14, 2023. Both parties were represented by counsel.  On the basis of the agreement alleged by Wife, the Arbitrator circulated a draft Consent Award to counsel for the parties for approval as to form and content. Wife’s counsel suggested changes, which were made, and approved the Award. Husband’s counsel did not suggest changes and advised on October 3 that she did not have instructions to approve the Award. Thereafter, Husband was no longer represented by counsel.

Wife applied to the Arbitrator to issue the Award on terms she said were agreed upon by the parties on September 14. This application was heard by Zoom call on October 18. Husband failed to attend, either in person or by counsel, and filed no material.  

Later, Husband advised that he had been unable to attend the application. The Arbitrator gave him a further opportunity to respond on October 23, at which time the Arbitrator found that he attempted to “re-argue matters”. The Arbitrator advised that Husband was limited to dealing with the enforcement of the terms of the settlement agreement. Husband argued that the parties had not reached an agreement. Thereafter, the Arbitrator issued an Award dated October 24, 2023, which stated that the parties had reached a “comprehensive agreement” of the issues on September 14, 2023.

Was an agreement reached at the mediation?  Wife’s evidence concerned the alleged agreement and she argued that the evidentiary record was before the court was sufficient to allow it to make a finding on whether there was an agreement. 

Husband wanted to introduce evidence, if permission to appeal were granted, that he had been prevented from adducing evidence on Wife’s application before the Arbitrator that: (1) the parties had reached no agreement at the mediation because he had no counsel at that time;  and (2) that he was prevented from “rearguing” his positions before the Arbitrator. Husband argued that this evidence would also affect the determination as to whether the Arbitrator had made an error of law in making the Award.

The Court noted that the Arbitrator had declined to provide an Affidavit. She wrote to Wife’s counsel: “I believe the award issued by me…..clearly sets out the circumstances  surrounding and the basis for issuing the Award.” The Court inferred that because the Arbitrator had issued the Award, she believed there was an agreement between the parties.

The Court found that Husband’s evidence that there was no agreement provided no detail other than a bare denial of an agreement. He did not explain how the agreement was allegedly “forced” upon him. He provided no evidence of what happened during the mediation when the  agreement was alleged to have been made.  He was represented by counsel during the mediation and provided no affidavit from that counsel (described by the Court as, “one of the eight or so lawyers dismissed by him over the course of the litigation of this divorce.”)  On the other hand, Wife provided very detailed evidence of the history of the process and negotiations during the mediation.

The Court found that Wife’s evidence, corroborated by the record of the Arbitration and the Award, established that that the parties had reached an agreement on terms encapsulated in the Award. The first time Husband objected to the settlement was during the hearing on October 23, over a month after the Arbitrator had circulated the Award for approval as to form and content.

Was there an Appealable Error of Law? – The parties’ arbitration agreement allowed an appeal only on a question of law, with leave.  The Court considered the errors of law alleged by Husband.

(1) Was the arbitrator functus officio? Husband argued that Arbitrator had erred in law by hearing Wife’s application to have the agreement “crystallized” into the Award. In other words, if the parties had reached an agreement, the Arbitrator should not have heard Wife’s application because of both the parties’ Mediation/Arbitration Agreement and s. 36 of the Alberta Arbitration Act, RSA 2000, c A-43, which Husband argued meant that the arbitrator was functus officio when the Award was made.

The parties’ Mediation/Arbitration Agreement stated:

“The Arbitrator’s jurisdiction, unless otherwise agreed, shall continue until a final agreement is reached between the parties or a ‘final hearing’ and Award of the matters at issue.  Subject to issuing corrections or clarifications of any Awards she shall be functus officio upon the parties entering into a final agreement on the issues and/or issuing a final Award and may hear variation or subsequent applications only by written agreement of the parties and the Arbitrator.

If the parties arrive at an agreement with the assistance of the Arbitrator, the Arbitrator shall terminate the proceeding and shall record the settlement in the form of an Award pursuant to s. 36 of the Arbitration Act.

Section 36 states, “if the parties settle the dispute during arbitration, the arbitral tribunal shall terminate the arbitration and, if a party so requests, may record the settlement  in the form of an award.”

Husband argued that the Arbitrator should not have heard Wife’s application to issue the Award  after Husband refused to sign off on the draft.

The Court disagreed. It found that the Arbitrator’s conduct was consistent with s. 36 of the Act:

 “[51] …An agreement was reached between the Parties to settle the disputed matters. The arbitration then came to an end, and the Arbitrator confirmed the terms of the agreement with the Parties, and circulated a draft Consent Award. [Wife’s] counsel signed off on the draft. [Husband], however, instructed his former counsel not to sign off on the draft.

[52]   [Wife] then simply asked the Arbitrator to issue the Award without [Husband’s] consent to its form and content, which she did. The Arbitrator, according to the Agreement to Arbitrate, only became functus, “upon the parties entering into a final agreement on the issues and/or issuing a final Award.”  [emphasis added] The only reasonable interpretation of the conjunctions in that clause are that the Arbitrator would become functus where the Parties reached an agreement and she issued the final award. The “or” would only apply in the case of the Arbitrator having to make a decision in the absence of an agreement.

[53]  If [Husband] is right, then simply by refusing to sign off on a draft Award, a party can prevent the issuance of an Award, even if they agreed to its contents. With respect, that can’t possibly be correct.  And it can’t constitute an error in law.”

Therefore, the Court denied leave to appeal on this ground.

(2) Was the process unfair?- Husband argued that he was not able to make his case because the Arbitrator’s ruling resulted in a “conflation” of the mediation and arbitration phases of the proceeding.

Husband argued that because there was a disagreement about whether the parties had settled the dispute, the Arbitrator should have terminated the mediation and proceeded to a full arbitration.

However, the Court found, on the facts, that Husband did not express disagreement with the settlement agreement until more than a month after it was reached and confirmed by counsel. After the parties reached agreement to settle their dispute there was no need for the Arbitrator to adjudicate on the issues. The Award arose out of the parties’ settlement agreement. There was nothing improper about arriving at an agreement that would result in an award. QuotingDawson v Dawson2016 ABQB 167 at para 38 the Court stated at para. 60:

“There is no reason why a settlement reached through the use of mediation techniques as contemplated in section 35 [of the Act] could not be incorporated into an award or why section 36 should be narrowly construed to be only available for a settlement reached in the course of an actual arbitration hearing.  Such an interpretation would be inconsistent with the legislative intent of providing a flexible mechanism for parties to resolve their disputes outside the court process.  The Arbitration Act should be interpreted in a broad purposive fashion.”

The Court called this a case of “buyer’s remorse” after Husband reached an agreement to resolve his litigation. Therefore, it granted Wife’s application to enforce the Award and denied Husband’s cross-application for leave to appeal.

Editor’s Notes:

This case is surely right.  Could this result have been avoided if the parties had signed off on the settlement immediately after it was reached, while the momentum remained? Perhaps that was not possible.

But it is a good example of why commercial arbitrators (and some counsel) are reluctant to participate in med-arbs. It is a much more common practice in family law arbitrations, like in this case. Most of the potential issues in med-arb arise during the transition from mediation to arbitration.  It must be clear in the Mediation-Arbitration Agreement among the parties and the Mediator-Arbitrator concerning what, if any, issues have been resolved by mediation before the arbitration phase starts. Typically, the mediation ends when a settlement agreement is reached, documented, and signed by all parties (or the parties reach a impasse). At that point, the parties transition to the arbitration phase.

The Mediation-Arbitration Agreement should also explicitly set out what information will be exchanged by the parties at the mediation state, so that both parties ensure that the Mediator/Arbitrator has whatever information they think is important at this stage and to allow them to buy into the fairness of the process. This could have prevented Husband in this case from arguing that he was prevented from putting forward important evidence.

it is critical that parties and their counsel have a full understanding of the process. However, even a well-drafted Mediation-Arbitration Agreement that includes these elements and an experienced Mediator-Arbitrator are no protection against what occurred in this case.

For more information about med-arb you can view my Arbitration Bootcamp sessions. In session 15, I talk generally about how med-arb can be used and refer to the ADRIC Med-Arb Rules and in session 16 I interview well-known Mediator-Arbitrator David McCutcheon about best practices and potential traps for the unwary.