Manitoba – court enforces efficiency and finality of arbitration to deny challenge to series of awards – #023

In Wolfe et al v Taylor et al; Fat Cat Farms Ltd et al v Wolfe et al, 2017 MBCA 74, Madam Justice Barbara M. Hamilton dismissed two applications under section 48 of Manitoba’s The Arbitration Act, CCSM c A120 for leave to appeal a Queen’s Bench’s dismissal of two applications to set aside awards.  She determined that the detailed awards had issued from an experienced commercial arbitrator in a highly contested private commercial arbitration and had been adequately considered by the court.  There would be no public interest in hearing the matter or injustice created by allowing the parties to obtain the resolution of their dispute. 

The dispute involved in a farming operation owned equally by two corporations Taylor Bros. Farm Ltd. (“TBF”) and Edwin Potato Growers Ltd. (“EPG”).  TBF and EPG were each held equally by two corporate shareholders 5606269 Manitoba Ltd. (“269”) and 5608067 Manitoba Ltd. (“067”).  269 was owned and directed by Lincoln Wolfe.  067 was owned and directed by Duane Taylor.  The court referred to 269 and 067 and their corresponding owners respectively as “Wolfe” and “Taylor.”  At the date of the court decision, TBF or EPG no longer actively carried on business.  Wolfe operated through R.L. Wolfe Ltd. (“WT”) and Taylor operated through Fact Cat Farms Ltd. (“FCF”). 

Wolfe and Taylor signed a shareholders agreement for TBF but not EPG.  The agreement contained an undertaking for arbitration. 

Taylor filed court proceedings for an oppression remedy under Manitoba’s The Corporations Act, CCSM c C225 but the parties negotiated prior to the hearing and agreed that TBF and EPG would cease operations and both would be liquidated by an auction. 

The auction never occurred.  Wolfe eventually applied to the court for an order to liquidate TBF and EPG.  Taylor served a notice of arbitration and applied for a stay which was granted including a direction that the liquidation be determined according to the arbitration agreement.  Wolfe and Tayler later agreed to add FCF and WL to the arbitration. 

Hamilton JA. Described the arbitration agreement as “broad in scope” and cited an excerpt providing for the arbitrator’s jurisdiction to issue a preliminary award clarifying the buy-sell (shotgun) rights of the parties.  The arbitrator subsequently held that the parties had agreed to liquidate the corporations and waive their buy-sell rights.  The parties conducted a mediation before the arbitrator during which they agreed to five (5) issues which would be arbitrated. 

The arbitrator issued August 24, 2016 dealing with the five awards and retained jurisdiction to finalize the calculations required for two issues and clarify any terms.  At the request of Wolfe, the arbitrator clarified part of the award by a second award on September 7, 2016.  By a further award on October 5, 2016, the arbitrator answered questions raised by Taylor.  The arbitrator then issued an award October 17, 2016 in response to Taylor’s request to reconsider the October 5, 2016 award.  The arbitrator ordered the parties to retain a specific accounting firm to liquidate TBF and EPG. 

Taylor and FCF filed applications to set aside certain of the awards.  One application sought to set aside the September 7, 2016 award and obtain declarations that their procedural rights to fairness had been denied and that their rights under the arbitration agreement had not been observed.  The other application sought to set aside the October 5 and October 17 awards pursuant to section 45(1)(f) and 45(1)(g) of The Arbitration Act. 

In brief reasons, Mr. Justice Victor E. Toews in Fat Cat Farms Ltd. v. Wolfe et al, 2017 MBQB 76 dismissed both applications to set aside and enforced the arbitrator’s order to liquidate two corporations owning and operating the farming operations.  

Taylor appealed the liquidation order and, with FCF, filed two application seeking leave to appeal Toews J.’s decision dismissing their applications to set aside the September 7, October 5 and October 17 awards.   

Hamilton JA summarized Taylor’s four (4) grounds in support of the two leave applications but identified Taylor’s key argument on appeal as being a jurisdictional issue.  

[48] Taylor’s fundamental position is that the arbitrator’s liquidation order to liquidate TBF and EPG is contrary to the terms of the mediation agreement, which Taylor asserts sets out the rules, guidelines, scope and the limits of the arbitrator’s jurisdiction.  Taylor argues that the arbitrator did not follow the procedures set out in the mediation agreement and therefore, he did not have the jurisdiction to deal with the shotgun issue and decide that the shotgun period had expired.  Therefore, he had no jurisdiction to order the liquidation order. 

Taylor asserted that the standard for review of a jurisdictional issue is correctness, not reasonableness. 

All parties agreed that the liquidation order need not be decided if leave is not granted to allow Taylor and FCF to challenge the dismissal of their challenges to the awards.  Hamilton JA agreed, noting that the liquidation order merely gave effect, as provided by section 49 of The Arbitration Act, to an arbitral award. 

Hamilton JA stated that, because an appeal will be a second review, the threshold for leave to appeal is high, relying on Loewen v. Manitoba Teachers’ Society, 2014 MBCA 12.

[21] I was referred to the decision of my colleague, Chartier J.A. (as he then was), in Rolling River School Division v. Rolling River Teachers’ Association of the Manitoba Teachers’ Society et al.2009 MBCA 38 (CanLII)236 Man.R. (2d) 249, as indicating how a chambers judge of this court should deal with leave applications under s.48 of the Act, which involves an appeal from a judge of the Court of Queen’s Bench with leave.  In that decision, Chartier J.A. took the position that application under s.48 of the Act, which unlike s44(2) does not state the criteria to be met for leave to be granted, should follow the criteria normally applied in this court when dealing with decisions involving what could be called “a second appeal” (at para. 11).  He concluded that it required a higher threshold and that the criteria to be applied is: 

a) a “pure question of law or jurisdiction” (at para. 12);

b) a question of arguable merit with a reasonable prospect of success;

c) “a matter of public interest that is of sufficient importance to warrant consideration by the province’s highest court” (); and

d) alternatively, in an exceptional set of circumstances, it would be judicious to grant leave even though one or more of the above three criteria are not met, but where a denial of leave may result in an injustice.

Hamilton JA also relied on Winnipeg Airports Authority Inc. v. EllisDon Corp., 2011 MBCA 51 para. 12.

Sections 45(1)(f) and 45(1)(g) provide different grounds upon which an award may be set aside:  

(f)     the applicant was not treated equally and fairly, was not given an opportunity to present a case or to respond to another party’s case, or was not given proper notice of the arbitration or of the appointment of an arbitrator;  

(g)     the procedures followed in the arbitration did not comply with this Act or the arbitration agreement.” 

Taylor’s argument on the leave application also brought into play section 45(1)(c) which had not been invoked in the leave to appeal materials.   

(c)   the award deals with a matter in dispute that the arbitration agreement does not cover or contains a decision on a matter in dispute that is beyond the scope of the agreement.”   

Hamilton JA agred to consider the additional ground.  She found that the essence of the argument had been made before Toews J. and Wolfe was not taken by surprise, having had an opportunity to address the argument before Toews J. and before her.  

Taylor submitted that the leave applications were important questions of jurisdiction and law and had a reasonable prospect of success on the merits, and raised issues of legal significance to all arbitrators in Manitoba.  Wolfe argued that the awards raised no issue of jurisdiction and that leave applications raised no arguable questions of law.  The dispute was a complex but private arbitration and raised no question of public importance.  

Hamilton JA analyzed the reasons in first instance and determined that the judge had addressed Taylor’s arguments and applied the correct standard of review.  Any reference to the mediation agreement, while “unfortunate“, were in part in response to Taylor’s own requests for clarification and reconsideration and did not demonstrate a jurisdictional error.  Rather, Taylor raised issues with how the arbitrator interpreted the mediation agreement which Hamilton JA determined was a mixed question of fact and law, not jurisdiction.  She also identified no procedural issues as the arbitrator had “responded carefully and quickly to Taylor’s inquiries.”  Hamilton JA concluded that Taylor had demonstrated neither an arguable question of law or jurisdiction stemming from the dismissal of the applications to set aside the awards nor a public interest. 

[74] The arbitrator wrote detailed awards in a highly contested private commercial arbitration for which the key policy objectives are efficiency and finality (see Teal Cedar Products Ltd v British Columbia 2017 SCC 32 (CanLII)).   In Winnipeg Airports Authority, leave to appeal an award in a commercial arbitration was denied for lack of any public interest in having the matter heard by the Court of Appeal.   Scott CJM concluded in that case that there is “little, if any, precedential value beyond the peculiar facts of this case” (at para 37).  That is also the case here.  This is a commercial dispute that the parties agreed to resolve through arbitration, and was addressed thoroughly by an experienced commercial arbitrator and then reviewed by a Court of Queen’s Bench judge. 

[75] Finally, Taylor has not demonstrated that an injustice will occur if leave is not granted.  This is not an exceptional set of circumstances.  The liquidation of TBF and EPG was agreed to in 2015, was ordered under the award on the preliminary issues and was again specifically contemplated under the mediation agreement.  The parties have been seeking a resolution to their inability to resolve their disputes.  The arbitration and the awards of the arbitrator provide this.  I see no injustice. “ 

Hamilton JA dismissed the leave to appeal applications as well as the stay application.