Lisa’s 2022 Hot Topic #1: Arbitrator resignation – the when, how, and what next? – #696

Although there is provision in most provincial domestic arbitration legislation and the Model Law for the resignation of the arbitrator, there is little guidance on when the arbitrator may do so and the potential consequences once that occurs. However, two cases released in 2022 are helpful in that they suggest: (1) potential limitations on the discretion of an arbitrator to resign, regardless of the rights contained in the legislation; and (2) how the parties many anticipate this issue and provide for it in their arbitration agreement if it is important, so as to minimize the inevitable disruption that arises when an arbitrator resigns.

SZ v JZ, 2022 ABQB 493

Here, the parties to a family law dispute entered into a Mediation/Arbitration Agreement that stated: “the parties shall attend mediation/arbitration on this matter…no later than November 5, 2021, subject to the availability of the parties, their counsel and the mutually chosen mediator/arbitrator”.

The Mediation/Arbitration Agreement also contained a clause that allowed the arbitrator to “terminate the arbitration process unilaterally if, in his opinion: (a) it is unnecessary, or likely not possible, to complete the arbitration; or (b) his fees are not paid or secured in a satisfactory manner”.

Before the arbitration was completed, the arbitrator sent the following resignation letter:

“I am writing to advise as to my resignation as arbitrator. Looking to my current workload and scheduling into the summer and fall it is difficult to accommodate the scheduling possibly required.

I have reviewed where the file sits and wanted to provide ample notice so as to avoid any prejudice to the parties moving this forward.

I am available to assist if required in terms of the process to appoint an alternative arbitrator pursuant to the act.”

There is no suggestion that the arbitrator’s fees were not paid.  

Thereafter, the wife applied to the court for urgent relief. The husband argued that the court had no jurisdiction because the parties had agreed to arbitrate. Justice Marion found that he had jurisdiction to hear the application. His analysis suggests that the arbitrator was a party to the parties’ submission to arbitration.

First, the arbitration agreement specified that the arbitration would proceed only before a specific arbitrator. Therefore, resignation of the arbitrator terminated the arbitration. This outcome was consistent with s. 42 of the Alberta Arbitration Act, RSA 2000, c A-43, which  states that:  “the arbitrator’s mandate is terminated, if the arbitration agreement provides that the arbitration is to be conducted only by that arbitrator”.

Second, both the arbitration agreement and the relevant legislation allowed the arbitrator to resign. The arbitration agreement permitted the arbitrator to terminate the arbitration process (rather than specifically resign) “unilaterally, if, in his opinion… it is unnecessary, or likely not possible, to complete the arbitration…” The resignation letter did not address this requirement, nor did Justice Marion’s reasons. He noted that s. 14(1)(a) of the Arbitration Act provides as follows:

14 (1)  An arbitrator’s mandate terminates when

 (a)    the arbitrator resigns or dies,

 (b)    the parties agree to remove the arbitrator,

 (c)    10 days elapse after all the parties are notified of the arbitral tribunal’s decision to uphold a challenge of the arbitrator and remove the arbitrator, and no application is made to the court under section 13(6), or

 (d)    the court removes the arbitrator under section 15(1).

(2)  An arbitrator’s resignation or a party’s agreement to terminate an arbitrator’s mandate does not imply acceptance of the validity of any reason advanced for challenging or removing the arbitrator.”

However, Justice Marion stated that the arbitrator must exercise the discretion to resign reasonably and in good faith, in accordance with the principles enunciated by the Supreme Court of Canada in Wastech Services Ltd. v Greater Vancouver Sewerage, 2021 SCC 71. In other words, the arbitrator had to consider whether the resignation would cause the parties unfairness, prejudice, or harm. In this case, neither party asserted prejudice or that the arbitrator had not acted in good faith, and the parties had not taken up the arbitrator’s invitation to meet to get his assistance to the appointment of an alternative arbitrator. (For my Case Note with a more detailed analysis of this decision see SCC Wastech decision applies to  exercise of arbitrator’s discretion to resign – #647.)

Kubecka v Novakovic, 2022 ONSC 4503

In this case, the parties’ Mediation-Arbitration Agreement expressly allowed the arbitrator to resign, seemingly for any reason,  by providing written notice, but also reinforced the parties’ intention to continue to arbitrate before a replacement arbitrator:

“12.1     Neither party may unilaterally withdraw from this Agreement at either the mediation or arbitration stage. However, the parties may jointly terminate this Agreement by their written agreement. Subject to paragraph 12.2, the Arbitrator shall proceed with an arbitration as provided for in this Agreement notwithstanding that the mediation has been unsuccessful or that one of the parties no longer wishes to participate in the arbitration.

12.2   [The Arbitrator] may at any time resign from her appointment as arbitrator by providing written notice of her resignation to the parties.

12.3     In the event that [the Arbitrator’s] appointment is terminated, and the parties are unable to agree on a replacement, a court of competent jurisdiction shall appoint a replacement arbitrator on either party’s application to the court.

12.4     In the event that [the Arbitrator’s] appointment is terminated, the parties agree that any interim or interlocutory award(s) made by [the Arbitrator] will continue to bind the parties and will continue in full force and effect as the basis for the continuation of the arbitration with a replacement arbitrator.

Here, the arbitrator resigned (for reasons not explained). The Applicant applied to the court for the appointment of a replacement arbitrator. Justice Pinto made the requested appointment. He disagreed with the Respondents’ position that, pursuant to Art. 12.3 of the Mediation-Arbitration Agreement, the court’s authority to appoint a replacement arbitrator arose only where the arbitrator’s appointment was terminated, not when the arbitrator resigned. He also noted that authority was also found in s. 14 of the Ontario Arbitration Act, 1991, SO 1991 c. 17, which expressly includes resignation as a form of “termination” of the arbitrator’s appointment and it could be presumed that the parties applied the same meaning in their arbitration agreement.

(For a more detailed analysis of this decision see my Case Note Arbitrator resignation did not terminate arbitration #652.)

Editor’s Notes:

The court in SZ v JZ was asked to determine only the jurisdiction issue – whether the arbitration terminated once the arbitrator had resigned. The parties apparently did not raise any issue about the right of the arbitrator to resign for the reasons stated in the resignation letter under either the arbitration agreement or the Arbitration Act, so Justice Marion’s reasons on this issue were obiter. Nonetheless, the decision is useful for three reasons. 

First, it highlights the potential danger when parties agree in their arbitration agreement to appoint a specific arbitrator, without providing for what will occur if that arbitrator resigns or is removed. Parties should at least turn their minds to this issue in negotiating the arbitration clause. The Kubecka v Novakovic decision is a good example of how this can be done. It did not avoid a dispute in the courts after the arbitrator’s resignation, but it resulted in a speedy resolution so that the arbitration could continue – the arbitrator resigned in May and the court appointed a replacement arbitrator in August.  

Second, it is arguable that the language of the relevant section of the relevant domestic arbitration legislation in these cases, when read in its entirety and considering where it is placed (between s. 13 – challenge to the arbitrator; and s. 15 – removal by the court) really addresses a situation in which an arbitrator resigns following a challenge to their independence or impartiality. The same argument can be made with respect to the comparable provisions in the Model Law, Art. 14 and 32, and it may be that the ability of an arbitrator to resign is more restricted to circumstances in which the arbitrator, “becomes de jure or de facto unable to perform his functions or for other reasons failed to act without undue delay” – or if the parties do not meet their contractual obligations to the arbitrator, such as payment of fees. These circumstances were clearly irrelevant to these cases. But in light of the apparent statutory limitations, it becomes all the more important for parties to deal with this issue in their arbitration agreement if it matters. 

Third, if this is important to the parties, it should be incorporated into the terms of the agreement the arbitrator will sign, usually the Terms of Appointment. In that way the obligations of contractual parties as set out in Wastech apply, unless the parties agree that the arbitrator may resign unilaterally for any reason at all.