In Aldred Estate (Re), 2020 ABQB 469, Mr. Justice Craig M. Jones held that a court’s discretion to refuse a stay under section 7(2) of the Arbitration Act, RSA 2000, c A-43 was limited to specific circumstances and a potential for inefficiency did not empower courts to disregard a statutory imperative. Despite challenges to the validity of the arbitration agreement, a court may grant the stay and allow the arbitrator to determine allegations of invalidity. Jones J. dismissed as “insupportable” the argument that the Arbitration Act did not apply if a party challenged the validity of agreement to arbitrate. Referring to sections 7(2)(b) and section 17(3), Jones J. held that these provisions would make no sense if an invalid arbitration agreement rendered the Arbitration Act inapplicable.
Litigation, Mediation, Settlement Agreement, Consent Order – Dispute resolution for the parties’ disagreements over a will and its administration began as estate litigation on October 31, 2016. See a more detailed list of facts set out in an earlier decision by Jones J. in Aldred Estate (Re), 2018 ABQB 600.
In his August 17, 2020 decision, Jones J. explained to readers that he has been case managing the litigation which he referred to as two (2) “related actions” or “Actions” in his reasons. The Actions involve, among other claims, remedies under provisions of Alberta’s Wills and Succession Act, SA 2010, c W-12.2. Only the 2018 and 2020 decisions have been posted online and each are attributed to court docket ES01 120293.
Jones J. writes that the parties in the Actions participated in a consensual mediation on June 12-14, 2019, each represented by counsel. Further to that mediation, the parties to the Actions entered into a settlement agreement (“Settlement Agreement”) which they agreed would be private and confidential. The Settlement Agreement took the form a letter.
Based on that Settlement Agreement, the parties then negotiated and agreed to terms of a consent order (“Consent Order”) approving the Settlement Agreement and containing specific directions for the execution of certain aspects of the settlement requiring court involvement. On July 12, 2019, Jones J. granted the Consent Order.
Careful to respect the parties’ intention to keep the terms of the Settlement Agreement private and confidential, Jones J. reproduced only those provisions necessary for his decision. See paras 10-13. A key provision of the Settlement Agreement included the parties’ agreement to engage in arbitration. The bespoke wording, including the mention of only “implementation” as a screening term for disputes subject to arbitration, would later become relevant to Jones J.’s analysis.
“If any party raises any issues respecting the implementation of this settlement, the administration of the Estate by the Personal Representative, or any actions taken by them as Directors and Officers of [E], including the costs and charges they incur, following the date of settlement which cannot be resolved by the parties, the parties will submit any such dispute to arbitration before Justice [ … ] (Retired) pursuant to the Arbitration Act of Alberta. The costs of the arbitration will be determined by the arbitrator”.
Arbitration – The personal representatives of the estate (“Personal Representatives”) and Respondent disputed the steps which had to be taken to implement the Settlement Agreement. To resolve their disputes, the Personal Representatives served a notice of arbitration (“Notice of Arbitration”) setting out the issues to be arbitrated.
The arbitration was scheduled to proceed January 28, 2020 but Respondent advised on January 13, 2020 that she would not participate in the arbitration and on January 23, 2020 served an application to vary the Settlement Agreement. The Personal Representatives responded with an application for a stay under section 7(1) of the Arbitration Act, RSA 2000, c A-43 (“Stay Application”).
Application to Vary Settlement Agreement – In her application to vary (“Vary Application”), Respondent sought to (i) vary the terms of the Settlement Agreement, (ii) vary the Consent Order and (iii) declare invalid the arbitration sought by the Personal representatives.
Respondent challenged the Settlement Agreement on the basis of mutual mistake, misrepresentation and unconscionability and argued that a court, not an arbitrator, should address her concerns. Respondent argued that:
(i) certain provisions of the Settlement Agreement are unconscionable, grossly unfair, claiming that her mistaken belief that it was reasonable was based on advice from counsel at that time;
(ii) as a consequence of alleged “bad legal advice”, Respondent alleged that her decision to enter into the Settlement Agreement was based on a “fundamental mistaken belief” with what she qualified as its “actual benefit” to her and invoked the doctrine of material mutual mistake.
Jones J. drew the line on his involvement. He stressed that he was not to assess the substantive merits of Respondent’s Vary Application and Vary Application. His task was to determine if the current dispute should proceed to arbitration or continue before the court. He did observe that Respondent nonetheless had to ague the merits of the Vary Application “to some extent” to convince him that that the Stay Application lacked merit.
Respondent’s argument to resist the stay were two-fold and involved (a) para. 7 of the Settlement Agreement and (b) section 7(1) of the Arbitration Act.
(a) Para. 7 of the Settlement Agreement – Respondent argued that para. 7 of the Settlement Agreement did not apply to her Vary Application because the issues raised did not involve “implementation” of the Settlement Agreement. The “more fundamental issues” of material mistake of fact, inducement by material representations and unconscionability are not within the scope of the agreement to arbitrate. Respondent argued that the parties had not agreed to “a rejection of the Court’s jurisdiction” regarding other matters other than “implementation” of valid terms agreed upon by the parties.
(b) Section 7(1) of the Arbitration Act – Respondent argued that:
– the Arbitration Act only applied if there was a valid arbitration agreement;
– the agreement to arbitrate in the Settlement Agreement was only one among many and therefore unlike the agreement to arbitrate required by the Arbitration Act;
– the agreement to arbitrate was limited to disputes over “implementation”. Respondent never agreed to arbitrate substantive issues such as mistake of fact, misrepresentation and unconscionability, and “did not intend to relinquish her right to Court determination of her rights in respect of these substantive issues and binding arbitration is not a fair way to resolve them”; and,
– the issues involving mistake of fact, misrepresentation and unconscionability were “fundamental issue” and “not capable of being the subject of arbitration under Alberta law”. Respondent “asserts that fairness and justice should take precedence over the principle of finality of settlement agreements and that rectification or rescission is the only way to remedy an injustice in this case”.
The Personal Representatives argued that the issues in dispute did fall within the scope of “implementation” and were therefore subject to the agreement to arbitrate. Respondent had been advised by counsel in the negotiation of the terms of the Settlement Agreement and had already received considerable benefits under it.
They argued that section 6 of the Arbitration Act manifests legislative intent to limit the court’s jurisdiction to “interfere” with an agreed-upon arbitration process. They relied on TELUS Communications Inc. v. Wellman, 2019 SCC 19 (CanLII), [2019] 2 SCR 144 para. 55 and EPCOR Power L.P. v. Petrobank Energy and Resources Ltd., 2010 ABCA 378 paras 16, 18-19. Despite the findings in Uber Technologies Inc. v. Heller, 2020 SCC 16 that circumstances may make in appropriate to grant a stay if the agreement to arbitrate is unconscionable or where inequality in bargaining power results in an improvident bargain, there is no evidence section 7 of the Settlement Agreement is unconscionable or improvident.
Jones J. disagreed with Respondent and held that the dispute must proceed to arbitration.
(i) Jones J. agreed with Personal Representatives that the term “implementation” ought to have a broader scope.
“[48] In my view, it is not facetious for the Personal Representatives to argue that virtually any concern that any party to the Settlement Agreement might have will ultimately, if unresolved, become a matter of implementation. I find that the arbitrator should be the one to decide if “implementation” encompasses the issues [Respondent] raises”.
(ii) Respondent argued that the Arbitration Act did not apply. Jones J. dismissed Respondent’s argument that the only way to “get to the Arbitration Act is through paragraph 7 [of the Settlement Agreement] Once paragraph 7 has been challenged … then you never get back to the arbitrator”.
“[52] This argument is insupportable. The Arbitration Act itself expressly contemplates an invalid arbitration agreement. Section 7(2)(b) permits the court to refuse a stay on the grounds that the arbitration agreement is invalid. Section 17(3) indicates that an arbitration provision forming part of a larger agreement may be valid and operational even if that larger agreement is found to be invalid. These provisions would make no sense if an invalid arbitration agreement rendered the Arbitration Act inapplicable. It is a fundamental principle of statutory interpretation that the legislature is presumed not to enact nonsensical provisions”.
(iii) Regarding Respondent’s argument under section 7(2)(b) of the Arbitration Act, Jones J. noted that Respondent did not allege that the entire Settlement Agreement was “utterly null and void” but only the agreement to arbitrate at para. 7. Respondent affirmed some provisions and challenged others, including the agreement to arbitrate.
“[54] It is important to distinguish between the arbitration provision and the other substantive provisions of the Settlement Agreement. For purposes of a stay application, the issue is the validity only of the arbitration provision, not the other provisions of an agreement. As noted above, s 17(3) of the Arbitration Act appears to embrace the notion that an arbitration provision forming part of a larger agreement may be valid and operational even if that larger agreement is found to be invalid”.
Because section 7(2)(b) is permissive, the court was not required to refuse a stay.
“It seems to me that, if it were clear that the arbitration agreement is invalid, the court would be more likely to refuse the stay. Where, however, the validity of the arbitration agreement is in doubt, the court may grant the stay and allow the matter to proceed to arbitration. It then becomes the arbitrator’s responsibility to determine the applicability of that arbitration provision in the specific circumstances of the case, which might involve a consideration of allegations of invalidity. I am not persuaded that this Court must make the threshold determination of validity. Section 17(1) of the Arbitration Act appears to empower an arbitrator to rule on her jurisdiction and on the validity of an arbitration agreement”.
Jones J. added that, even if some provisions of the Settlement Agreement were invalid, he was “not convinced that this interferes with the operation of paragraph 7”.
(iv) Jones J. declined to engage in whether the issues raised in the Vary Application were incapable of being arbitrated under Alberta law.
“[58] The problem I have with this argument is that it could be advanced in every situation where a party to an arbitration agreement decides they would fare better in court. The result would be that a party seeking to rely on an arbitration agreement could be required first to participate in a court proceeding to determine if the arbitration agreement applied. That would create considerable potential for mischief that I believe the legislation was intended to avoid”.
He did accept that the agreement to arbitrate could be “inapplicable without being invalid” but it was best that the arbitrator make the initial determination.
(v) Respondent claimed that the court determination would be more efficient and that, with a right of appeal albeit limited, the parties would be back before the court eventually. “Her counsel suggested that if I were to grant the Stay Application and remit the matter to arbitration, the parties would simply end up back before the Court at the behest of whichever party emerges from arbitration unsatisfied”.
Acknowledging that possibility, Jones J. remained unpersuaded. The discretion to refuse a stay under section 7(2) was limited to circumstances which Respondent did not establish. “The potential for inefficiency does not empower me to disregard a statutory imperative”.
urbitral note – First, the dispute sent to arbitration originated in court, arising from disputed application of the Alberta Wills and Succession Act. The parties, as court litigants, agreed to pause their litigation and engage in mediation. That mediation produced a signed, written agreement and included an agreement to arbitrate. Disputes over that settlement then went to court only to be sent back to arbitration. Despite originating in court, the parties’ dispute was required to be resolved by arbitration to the extent that the parties disputed the terms of the mediated settlement.
Second, for a recent analysis of the role of misrepresentation and distinctions between it and mutual mistake, see the earlier Arbitration Matters note “Settlement rescinded based on innocent misrepresentation of material fact unknown to Defendant” regarding Deschenes v. Lalonde, 2020 ONCA 304. In that decision, Ontario’s Court of Appeal upheld rescission of a settlement on the basis of Defendant’s innocent misrepresentation regarding a fact material to Plaintiff’s decision to settlement. Defendant’s actual or constructive knowledge that the representation was false was unnecessary. The Court distinguished rescission based on innocent misrepresentation from rescission based on unilateral mistake. Despite the strong presumption favouring finality of settlements, the Court reiterated that the ways to “upset” a settlement are the same as those applicable to other contracts, including fraud, misrepresentation, duress, undue influence, unconscionability, or mutual or unilateral mistake.