In Sivitilli v PesoRama Inc, 2024 ABCA 249, a single justice of the Alberta Court of Appeal set out and clarified the statutory framework for appeals to the Court of Appeal arising from challenges to arbitrations made on the basis that: (1) the arbitration agreement is invalid (s. 47 of the Arbitration Act); or (2) that court intervention is needed to prevent unfair or unequal treatment of a party to an arbitration agreement (s. 6(c)). The appeal route to the Court of Appeal for challenges brought pursuant to s. 47 of the Arbitration Act, RSA 2000, c A-43, which includes allegations that the arbitration agreement is invalid, expressly requires leave of the Court of Appeal. The appeal route for challenges to arbitrations made pursuant to s. 6, such as allegations that court intervention is needed to prevent unfair or unequal treatment of a party, are not addressed in the Arbitration Act, and therefore decisions of the first instance court are subject to a general right of appeal under the Alberta Rules of Court. No permission is required to appeal a decision under s. 6.
Background to the Dispute – The Plaintiff was the CEO and President of the Defendant, PesoRama Inc. His position was terminated by letter dated August 16, 2021. The employment agreement provided for arbitration under Alberta’s Arbitration Act.
Initial discussions with respect to initiating an arbitration stalled and the Plaintiff issued a Statement of Claim on November 2, 2021. The Defendant filed a Statement of Defence and Counterclaim on December 13, 2021.
Plaintiff’s Motion to Discontinue His Action – The Plaintiff wished to discontinue the action and proceed with an arbitration instead. He served the Defendant with a Notice of Arbitration on January 5, 2022.
Defendant’s Application to Enjoin Arbitration – In response, the Defendant brought an application dated January 20, 2022, seeking to enjoin the arbitration from proceeding. The Defendant’s argument had two primary grounds.
First, the Defendant challenged the validity of the employment agreement which contained the arbitration clause. It relied upon s. 47(1)(b) which states:
“47(1) At any stage during or after an arbitration on the application of a party who has not participated in the arbitration, the court may grant a declaration that the arbitration is invalid because […]
(b) the arbitration agreement is invalid or has ceased to exist”
Section 47(2) provides that, “[w]hen the court grants the declaration it may also grant an injunction prohibiting the commencement or continuation of the arbitration.”
Second, the Defendant argued that if the Plaintiff’s arbitration was permitted to proceed, it would overlap with the Defendant’s Counterclaim which was before the court. It argued that, in the circumstances, this would result in a duplication of proceedings and unequal treatment of the parties, for which it claimed the Court is entitled to intervene pursuant to s. 6(c) of the Arbitration Act. It states:
“6 No court may intervene in matters governed by this Act, except for the following purposes as provided by this Act: […]
(c) to prevent manifestly unfair or unequal treatment of a party to an arbitration agreement[.]”
The Defendant relied upon the Alberta Court of Appeal’s earlier decision in New Era Nutrition Inc v Balance Bar Company, 2004 ABCA 280, in which the Court of Appeal interpreted s. 6(c) and held that it can be used as a tool to stay duplicative arbitration proceedings in favour of litigation.
The Chambers Justice’s Order – The chambers justice granted the Plaintiff’s application to discontinue his action without conditions and to appoint an arbitrator. The Court dismissed the Defendant’s application seeking to enjoin the arbitration.
The Appeal to the Court of Appeal – The Defendant sought to appeal to the Court of Appeal. The primary question was whether leave to appeal was required to raise the grounds set out s. 47(1)(b) and s. 6(c), and if so, whether it should be granted.
(a) Application for Permission to Appeal – s. 47(1)(b)
The first ground of appeal was based upon s. 47(1)(b) of the Arbitration Act (i.e., the Defendant’s allegation that the arbitration agreement was invalid). Section 48 of the Arbitration Act provides for appeals from decisions relating to s. 47, but it expressly requires leave of a justice of the Court of Appeal.
The Court at para. 11 identified the test for leave to appeal under s. 48:
“[11] The test for permission to appeal under section 48 of the Arbitration Act considers four factors:
1. Is the issue reasonably arguable?
2. Is deciding the issue likely to affect the result of the litigation?
3. Is the answer likely to be of interest to others or likely to influence later suits?
4. Is there any independent reason not to re-litigate the question or to limit the scope of the appeal?”
The Court denied leave to appeal on the issue of whether the arbitration agreement was invalid. This was for a number of reasons, including that the law is well settled and the chambers justice’s conclusion was supported by the record. Further, applicability of the “competence-competence” principle is also based on settled law in Canada. A further decision would not likely influence later suits. In addition, the Court stated at para. 18: “These are just some of the case specific facets of this matter that would likely confine the applicability of any rulings in an appeal to the parties alone or to a very narrow group.”
For all of these reasons, the Court denied permission to appeal the chambers justice’s decision under s. 47(1)(b) on the issue of whether the arbitration should be stayed because the arbitration clause was invalid.
(b) Appeals Relating to s. 6(c) of the Arbitration Act
The second ground of appeal to the Court of Appeal related to s. 6(c) and specifically whether the Court should intervene and stay the arbitration to prevent manifestly unfair treatment which was alleged to arise from duplicative proceedings in court. The Court of Appeal concluded that this ground of appeal was not addressed in the Arbitration Act, and therefore it is instead subject to the general appeal regime in the Alberta Rules of Court. Consequently, there was an appeal as of right.
The Defendant submitted that leave to appeal was not required for a s. 6(c) appeal. It argued that there is no provision in either the Arbitration Act or the Alberta Rules of Court that requires leave to appeal on the interpretation of s. 6(c) and as a result, it has an appeal to the Court of Appeal as of right.
The Plaintiff disputed the Defendant’s position. He argued that the Defendant’s ultimate argument with respect to the court’s power to stay an arbitration in favour of court was based on the Court of Appeal’s interpretation of s. 6(c) in the earlier New Era case, and that ultimately cannot succeed because that case had been overruled in TELUS Communications Inc v Wellman, 2019 SCC 19 and IBI Group Architects (Canada) Inc v Edmonton (City), 2022 CarswellAlta 1805 (ABKB). According to the Plaintiff, this ground of appeal was not viable and the only available ground required leave under s. 48.
The Court addressed the preliminary issue of whether leave to appeal the interpretation of s. 6(c) was required. It agreed with the Defendant that it was not. It applied the reasoning set out in the recent decision of Schafer v Schafer, 2023 ABCA 117, which outlined the basic principles of appellate jurisdiction. For further discussion on Schafer, see Timothy Hughes’ Arbitration Matters Case Note: “Alberta – Court of Appeal to clarify its jurisdiction in arbitration matters – #689”, dated December 5, 2022.
The Court explained that the Court of Appeal is a statutory court and its jurisdiction is derived from legislation. In particular, the Alberta Rules of Court and the Judicature Act set out the Court of Appeal’s jurisdiction to hear appeals from the Court of King’s Bench. Rules 14.4 and 14.5 distinguish between appeals that can be brought as of right and appeals for which permission must be obtained. Rule 14.4 gives a general right of appeal, but it carves out appeals where the legislature has “otherwise provided”. Likewise, Rule 14.5, enumerates a list of appeals for which permission to appeal is required, and includes in the listed categories appeals of “(1)(f) any decision where permission to appeal is required by an enactment”.
The Court concluded that the Defendant had an appeal as of right because, “[t]he rationale in Schafer applies here, and as the Arbitration Act does not otherwise provide or otherwise restrict a right of appeal, the combined provisions of section 3 of the Judicature Act, RSA 2000, c J-2 and Rule 14.4 apply to provide that right. Further, there is nothing in either the Arbitration Act or in Rule 14.5 that would require leave on that ground of appeal” (para. 25)…“As a result, no permission to appeal is required for the ground of appeal in relation to section 6(c) of the Arbitration Act” (para. 26).
Contributor’s Notes:
First, this case sets out the basic framework for statutory appeals in Alberta to the Court of Appeal in matters relating to arbitration proceedings. The statutory framework is set out in the Alberta Rules of Court and the Judicature Act, and limited, as applicable, by specific provisions in the Arbitration Act.
The routes of appeal to the Court of Appeal set out in the Arbitration Act are not the only routes to appeal. To the extent that it is not limited or otherwise addressed, the jurisdiction of the Court of Appeal set out in Rule 14.4 of the Alberta Rules of Court can still apply. As stated by the Court of Appeal in Schafer:
“[41] This interpretation is consistent with this Court’s practice of hearing appeals as of right that are related to arbitral proceedings where the appeal is not specifically curtailed by provisions of the Arbitration Act.”
This is important for practitioners, as there may be an appeal to the Court of Appeal as of right on matters that are not addressed, or otherwise limited, by the Arbitration Act.
Second, and of particular importance for practitioners in Alberta, is if this case proceeds to appeal, it will present an opportunity for the Alberta Court of Appeal to re-consider its earlier decision in New Era which held that, in certain circumstances, s. 6(c) gives the court power to stay overlapping arbitrations in favour of litigation. As indicated above, the Supreme Court departed from this approach in Wellman, which was decided under the Ontario Arbitration Act, 1991, SC 1991, c.17.
In 2022, in IBI Group, the Court of King’s Bench of Alberta went as far to state that the Court of Appeal’s 2004 decision New Era “was no longer good law” (para. 270). For further discussion, see also Julie Hopkins’ Arbitration Matters Case Note: “Alberta – Power to prevent “manifestly unfair treatment” not power to stay arbitration – #706”, dated January 31, 2023. The applicability of the Court of Appeal’s decision in New Era is central to the Defendant’s ground of appeal. This case will give the Court of Appeal the opportunity to directly address the extent to which, or whether, New Era was overruled in Wellman.
The upcoming appeal on the merits will raise interesting issues given the Supreme Court’s decision in Wellman. In light of the importance of New Era to an appeal in this case, and the Supreme Court’s findings in Wellman, the Court in this case suggested that, “[c]onsideration of a formal application to reconsider pursuant to Rule 14.46 may be prudent in the circumstances of this case” (para. 27).
Consequently, arbitration practitioners should stay tuned for the next stage of the appeal.