Manitoba – Procedural choices made for efficiency bind losing parties – #783

With what the Respondent must hope is the final chapter of a long and expensive saga, in Christie Building Holding Company, Limited v Shelter Canadian Properties Limited, 2023 MBCA 76 (CanLII), the Court of Appeal confirmed parties must live with the consequences of their decisions on how to conduct the arbitration. The parties agreed to forego obtaining transcripts of the arbitration and the formalities of entering thousands of documents as exhibits (only five were formally marked as such). C lost the arbitration and clearly regretted its agreement to limit the evidentiary record. The nature of the “record” was at the heart of the Applicant C’s two trips to the Manitoba Queen’s Bench, one to the King’s Bench, and two to the Court of Appeal. C was unsuccessful at every turn. In the end, the Court of Appeal did not agree the lower court had mistakenly declined jurisdiction by rejecting C’s attempt to recreate the record by adducing affidavit evidence of what was formally before the arbitrator. In the circumstances, the Court held the “record” would consist of the two awards and accompanying reasons, the pleadings, and the five marked exhibits.

The parties’ dispute – The arbitration arose from a development agreement between C and S as part of a seven-year project to develop a property for a local hospital authority. C’s claims “touched upon virtually every facet of the project.” It alleged fraud, deceit, breach of fiduciary duties, and bad faith against S. In turn, S claimed more than $2 million in damages against C for wrongful termination of a long-term property management agreement. 

The arbitration – The proceedings spanned 43 days, including viva voce evidence from seven fact witnesses and two experts, with reference to some 1,500 to 2,000 documents. The arbitrator’s 84-page decision was “detailed, comprehensive, and analytical” addressing “every issue between the parties (except for costs and interest), with reference to viva voce evidence, documents, exhibits, and relevant legal authorities.” 

All of C’s complaints were dismissed, and S was awarded just over $2.3 million in damages. 

Unable to settle costs and interest themselves, the parties again appeared before the arbitrator. After this hearing, but apparently because of information disclosed by S, counsel for C obtained documents relating to a settlement previously entered into by S and the hospital authority in respect of the project. C submitted the settlement documents to the arbitrator as “new information/evidence” arguing they “impugned” the arbitrator’s finding of bad faith made against C and asked the arbitrator to reconsider that part of his award and reverse an associated damages award. C also asserted S had wrongly withheld the settlement documents and misled the arbitrator.

In a supplemental award, along with deciding costs and interest, the arbitrator concluded: (1) he had no authority to amend the first award; (2) even if the settlement documents had been disclosed, they wouldn’t have affected his decision as they were irrelevant; and (3) they wouldn’t have been admissible as new evidence because they weren’t “new”, finding C’s counsel was alive to the dealings between S and the hospital authority and with due diligence could have explored the issue during the discovery process.

Queen’s Bench/King’sBench – C appealed the award to the Queen’s Bench under s. 44(2) of the Manitoba Arbitration Act (the Act) and sought to set aside the award pursuant to s. 45(1)(f), (g) & (i) [the applicant was not treated fairly, the procedures followed in the arbitration did not comply with the Act or the arbitration agreement, and the award was obtained by fraud].

As a preliminary matter, the Court had to decide what constituted “the record” for the purposes of the application before it. In a decision discussed in Arbitration Matters Case Note Manitoba – applicant for leave to appeal cannot revisit procedural decisions creating limited evidentiary record – #467, the Court refused C’s request to expand the record to include “a selective and disputed evidentiary record” by way of affidavit evidence where the parties had deliberately agreed to forego creation of an official evidentiary record of the arbitration. The parties made conscious choices and those choices had consequences. At paragraph 88 the Court stated: 

“When a party to what had been an arbitration now seeks from a reviewing court the creation or reconstruction of an evidentiary record for the purpose of appeal, after having intentionally and jointly chosen to not create an evidentiary record, the reviewing court cannot do what it should not do: permit a rehearing in a court of law (and risk substituting its own views) on the basis of an evidentiary record potentially different than what was before the arbitrator.” 

The Court held the “record” would consist of the two awards and accompanying reasons, the pleadings, and the five marked exhibits.

Within days of the release of this decision C filed a motion seeking to vary the Court’s initial decision on the ground S’s counsel had misrepresented the agreements related to the record. In a decision discussed in Arbitration Matters Case Note Manitoba – ‘reckless’ and ’unfounded’ allegations against S counsel regarding arbitration record justify personal costs order against C counsel – #486 the Court dismissed the motion and ordered solicitor and client costs against C, including $3,500 against C’s counsel personally.

C’s attempt to appeal these rulings to the Court of Appeal (trip #1 to the CA) was dismissed as premature. [2021 MBCA 103 (CanLII)].

With these preliminaries out of the way, the matter came on for a hearing on the merits. In a thorough discussion of the issues the Court released its decision in 2022, discussed in Arbitration Matters Case Note Manitoba – Vavilov inapplicable to arbitration appeals – #709.

C had advanced two substantive lines of argument. 

On the application for leave to appeal [s. 44(2)], C said the arbitrator had committed errors of law in respect of his interpretation of certain key documents in the arbitration, his findings of bad faith against C, his damage award, his costs award, and his interest award. The Court found the issues raised by C were not questions of law of arguable merit but rather questions either of fact, or of mixed fact and law, and so not subject to appellate review. 

On the set-aside application [s. 45(1)(f) & (g)], C challenged the arbitrator’s decision regarding the settlement documents on the basis that S’s failure to disclose the documents was inconsistent with the arbitration agreement and that C had no opportunity to examine S on the documents. The Court carefully reviewed the arbitrator’s decision rejecting the settlement documents as new evidence. It noted set-aside applications “are not concerned with the substance of the parties’ dispute” and that the settlement documents related only to the issue of contractual interpretation. The Court held that to accept C’s position would create an “alternative and indirect appeal route” and concluded the arbitrator’s reasons demonstrated no legitimate issue with respect to procedural fairness.

Application for leave to Appeal to MBCA – In C’s second trip to the Court of Appeal, C argued the Court had: 

(1) acted on a wrong principle by limiting the record for the leave applications and therefore mistakenly declined jurisdiction; and 

(2) in refusing the set-aside application, made errors of law with arguable merit of sufficient importance to be considered by a panel of the Court of Appeal. 

The Court of Appeal rejected all the potential grounds of appeal C raised. Its reasons are consistent with prevailing jurisprudence:

At para. 26: “…generally, no appeal lies from a decision regarding leave to appeal under section 44(2) of the Act, unless the tribunal mistakenly declined jurisdiction.” 

At para. 34: “The judge understood the objectives of commercial arbitration and that the scope of appellate intervention is narrow and limited to questions of law“. 

At para. 36: “In my view, the judge’s finding that the record disclosed no questions of law with arguable merit was, in part, a function of the parties’ approach to the litigation. The applicant’s assertion that the judge erred by limiting the record when this was an intentional decision made by the parties is untenable. I agree with the judge’s concern that expanding the record as proposed by the applicant risked creating “an evidentiary record potentially different than what was before the arbitrator.” 

At para. 37: “It is the applicant’s onus to establish questions of law with arguable merit. If the foundation to do so does not appear in the record, that does not permit the parties to file affidavits containing information beyond any official record.”

Contributors Notes:

This case could easily be seen as a cautionary tale for the unwary party or counsel. They might see the Court’s considerable concern about the absence of a formal evidentiary record as a warning to bring all the trappings of the court process into arbitration. However, considered in its proper light, this case should be celebrated as a vindication of the arbitral process. Despite the Court’s concerns about the record, the decision upholding it should be applauded for holding the parties to their procedural bargain.

When experienced commercial parties craft a process to settle their disputes they must be held to that bargain and that means taking the good with the bad. In this case, the parties agreed to a more streamlined process: no transcripts and limited marking of exhibits. The record showed the parties were able to fully canvass all the issues they wanted with the arbitrator. Despite later protestations by C to the contrary, no one was denied a fair hearing. The parties got precisely the process they agreed to. If – as was the case here – the practical result of the agreed process was to further curtail reviewing rights by limiting the formal record available for review, so be it. Finality – in a timely manner – is an equally important goal of arbitration.