In Pomerleau Inc. v 4HD Construction Ltd., 2024 BCSC 1973, the Court addressed two petitions. The first, by 4HD (the claimant/respondent by counterclaim in the arbitration), sought a ruling that the arbitrator had not, in fact, been appointed and declaring the award to be void or, alternatively, an order that the arbitrator be removed as arbitrator and the award set aside on the basis of a reasonable apprehension of bias. The second, by Pomerleau (the respondent/counterclaimant in the arbitration), sought recognition and enforcement of the award. The Court dismissed the first petition and granted the second. The arbitrator ruled that he had been appointed based on an email sent to him by 4HD advising him that he had been jointly selected as arbitrator and the had parties participated in the arbitration, even though no arbitration agreement was ever signed. The arbitrator issued an award dismissing the claims based on the claimant’s failure to prosecute the arbitration. The Court found that the arbitrator was correct that he had been properly appointed. The fact that the arbitrator was owed outstanding fees (only a few thousand dollars) by the claimant at the time he ruled on his appointment was insufficient to give rise to a reasonable apprehension of bias to justify setting aside the award.
Background to the Dispute – Pomerleau and 4HD were parties to a Canadian Construction Association (“CCA”) stipulated price subcontract that provided for disputes to be arbitrated under the Rules of Arbitration of Construction Disputes of the Canadian Construction Documents Committee (the “Rules”). The relevant version of the Rules provided that the parties must submit and agree on a proposed arbitrator within a specific time frame. On October 19, 2020, 4HD gave notice of arbitration to Pomerleau. On November 16, 2020, Pomerleau gave notice of its counterclaim. The amount in dispute totalled approximately $4.5 to $5 million.
On August 18, 2022, after several exchanges discussing proposed arbitrators, counsel for 4HD emailed the arbitrator stating that “…Both parties have agreed to select you to arbitrate the matter…”[Emphasis in original](para 24). Subsequent correspondence, including a conference call on September 28, 2022, and related emails, addressed procedural matters and a proposed timetable for arbitration. On October 17, 2022, the arbitrator sent the parties the draft arbitration agreement for review. Although neither party proposed any changes, the agreement was not signed. The arbitrator issued his initial interim account on October 31, 2022. Pomerleau paid. 4HD did not.
From November 2022 to April 2023, Pomerleau wrote to 4HD requesting updates on the delivery of its Statement of Claim and to move the arbitration along as the schedule had been delayed by 4HD. The arbitrator also attempted to coordinate dates for the arbitration in light of 4HD’s delays. During this period, the arbitrator continued to issue interim accounts. Pomerleau continued to pay. 4HD did not.
Between September to November 2023, the collections manager from the arbitrator’s law firm sent multiple emails to 4HD requesting payment of outstanding fees totaling $3,511.67. Pomerleau paid 4HD’s fees prior to the arbitration, subject to its right to claim the fees as costs.
The Dismissal Application and Award – On February 27, 2024, Pomerleau’s counsel notified both the arbitrator and 4HD’s counsel that it was applying for an order to dismiss 4HD’s claims and to terminate the arbitration pursuant to s. 17 of the Rules and s. 33 of the Arbitration Act, which allows the arbitrator to terminate the arbitration where the claimant is in default. Pomerleau argued that 4HD had failed to meet procedural deadlines and had made no effort to advance its claim. 4HD disagreed, asserting that the arbitrator had never been formally appointed since his fees were unreasonably high and that the fees were never disclosed until after the process had begun. On March 1, 2024, the arbitrator responded stating that the parties’ conduct and correspondence made it clear that the arbitration was underway, but invited submissions as to whether the previous steps constituted a binding agreement to arbitrate.
The arbitrator issued his award on March 22, 2024. He dismissed both 4HD’s challenge to his appointment, and its claims, as a result of its failure to act in accordance with the previously agreed upon terms and its delay in delivering its Statement of Claim.
On April 19, 2024, Pomerleau commenced its petition to enforce the award dismissing 4HD’s claims and ordering 4HD to pay costs to Pomerleau. On May 1, 2024, 4HD commenced a separate petition for a ruling that the arbitrator was never appointed, seeking to have the award declared void, or alternatively, to have the arbitrator removed and the award set aside on grounds of reasonable apprehension of bias. Both petitions were heard together.
4HD separately sought leave to appeal from the award under s. 58 of the Arbitration Act on the basis of alleged errors of law. That application was adjourned pending the outcome of the petitions addressed here.
Jurisdiction to Review the Arbitrator’s Appointment and Award – The Court held that the arbitrator’s ruling on his appointment was a ruling on his own jurisdiction such that the s. 4 of the Arbitration Act limited the Court’s intervention unless provided for in the Act. The Court rejected 4HD’s argument that it had jurisdiction under s. 14 (Appointment of arbitrator) or s. 58 (Applications for setting aside arbitral awards) of the Arbitration Act (as s. 58 does not extend to questions of reviewing whether parties have agreed to the appointment of an arbitrator).
However, the Court found that it had jurisdiction under s. 23(7), as the arbitrator had made a ruling on his appointment, which was a preliminary question. S. 23(7) of the Arbitration Act provides, “if the arbitral tribunal rules as a preliminary questions on a plea referred to in subsection (2) or (4), any party may, within 30 days after receiving notice of that ruling, apply to the Supreme Court to decide the matter.”
The Court held that the standard of review of the arbitrator’s decision relating to his appointment was correctness, citing lululemon athletica canada inc. v. Industrial Color Productions Inc., 2021 BCCA 428, which dealt with a similarly worded provision under the International Commercial Arbitration Act, R.S.B.C. 1996, c. 233 (addressed in Arbitration Matters; see BC – correctness standard of review applies on set aside applications on jurisdiction grounds ). It considered the question of whether the parties had agreed to appoint the arbitrator as follows: the “fundamental principle of contract law [is] that the court will consider the actions of the parties from an objective point of view” (para 144). The Court noted the absence of any evidence as to 4HD’s subjective intention ever having been communicated in any event.
The Court held that the subcontract required the parties to resolve their dispute through arbitration if either party gave notice to do so . The applicable arbitration Rules then required them to make efforts to reach an agreement on a single arbitrator. The Court found that an agreement to appoint the arbitrator existed based on the parties’ correspondence between June to September 2022. These included (para 147):
- Pomerleau’s email of June 20, 2022, saying that Pomerleau agreed to one of the arbitrators proposed by 4HD.
- 4HD’s email of August 18, 2022, to the arbitrator advising that the parties “have agreed to select you to arbitrate this matter.”
- The arbitrator’s email of August 19, 2022, raising conflict issues but advising that if those were resolved, he “would be pleased to act as arbitrator.”
- The emails from Pomerleau on August 30, 2022, and from 4HD on September 12, 2022, providing the requested consents in respect of the conflict issues that had been raised.
The Court also found that the parties participated in a conference call to discuss procedural matters, a step taken after an arbitrator had been appointed.
The Court rejected 4HD’s arguments that the draft agreement circulated by the arbitrator but not signed meant that no appointment had been made. The agreement was only meant to formalize what had already been agreed to, i.e., that the parties would proceed to arbitration with the appointment of the arbitrator. Similarly, the Court rejected 4HD’s claim that the arbitration agreement had to follow a specific form set out in s. 9.9 of the Rules. The Court also rejected 4HD’s argument that there was no agreement on the arbitrator’s compensation, which it asserted was a fundamental term, as s. 55 of the Arbitration Act provides that, in the absence of an agreement, the arbitrator is entitled to the fair value of services rendered.
Reasonable Apprehension of Bias – The Court cited Johnston v. Octaform Inc., 2024 BCSC 537 and Wewaykum Indian Band v. Canada, 2003 SCC 45 for the proposition that a reasonable apprehension of bias turns on whether, “an informed person, viewing the matter realistically and practically and having thought the matter through would conclude that it was more likely than not that the arbitrator, consciously or unconsciously, did not decide fairly” (para 89).
4HD argued that the arbitrator was in a debtor-creditor relationship with it once its fees were outstanding. This gave rise to a conflict of interest, and a reasonable apprehension of bias. The arbitrator had a pecuniary interest in ruling that he had been appointed since that finding was necessary to recover the outstanding fees, notwithstanding that Pomerleau had paid for those fees prior to the award.
Pomerleau argued that a party should not be able to remove an arbitrator unilaterally simply by refusing to pay their bills. Doing so would be contrary to B.C.’s Arbitration Act, which requires a “real danger of bias” under s. 58(3). Further, s. 15 expressly prohibits a party from unilaterally revoking the appointment of an arbitrator.
The Court acknowledged the practical realities of commercial arbitration, where an independent decision-maker is compensated for adjudicating a dispute. The Court acknowledged that, “[i]t is a fundamental aspect of commercial arbitration that the arbitrator will fulfill that role in return for a fee, and that the parties to the arbitration will incur liabilities to the arbitrator” (para 157). It concluded that it was neither realistic nor practical to hold that an arbitrator who is owed fees would lose the ability to decide fairly.
The arbitrator in this case was a senior lawyer with extensive experience in construction disputes. Given the range of the amount in dispute, $4.5 to $5 million, and the high potential costs of a full arbitration, the Court did not find that the fees owed by 4HD ($3,511.67) constituted serious grounds to establish a reasonable apprehension of bias.
Enforcement of the Award – The Court enforced the award, finding that Pomerleau had met the requirements for enforcement under s. 61 of the Arbitration Act. 4HD’s arguments against enforcement of the award were based on its challenges to the arbitrator’s appointment and its challenges for bias, which the Court dismissed.
Contributor’s Notes:
First, this case highlights the importance of parties’ conduct in the determination as to whether an agreement exists, including in the determination of whether there is an agreement to appoint an arbitrator. In this case, the Court adopted a practical approach rather than an overly technical one and looked beyond the formalities of an unsigned draft agreement to the parties’ correspondence and conduct to find that an agreement to appoint the arbitrator had indeed been reached. An arbitration agreement is a contract, and like any contract, the Court will look to the parties’ “objective” intentions, based on communications between the parties and their conduct.
Secondly, the Court’s decision also underscores the practical reality of commercial arbitration: that an arbitrator will be compensated by the parties to adjudicate on their dispute. The simple fact that the arbitrator is receiving payment for its mandate, or that it is owed outstanding fees by a party, is not sufficient to displace the presumption of judicial impartiality. It is the only reasonable result. One party cannot unilaterally create a circumstance in which the arbitrator is biased, simply by refusing to pay the arbitrator’s fees. Unless a challenging party can establish that there is a reasonable apprehension of bias, the presumption remains that the arbitrator will independently and fairly determine the issues before it, including its own jurisdiction. This will no doubt come as a great relief to arbitrators in Canada.