In Vanhof & Blokker Ltd. v Vanhoff & Blokker Acquisition Corp., 2021 ONSC 7211, the Respondents/Appellants on Appeal (“the Sellers”) sold the assets of their horticultural and garden supply business to the Applicants/Respondents on Appeal (“the Purchasers”) pursuant to an Asset Purchase Agreement dated December 29, 2014. The Sellers alleged that the Purchasers breached the terms of the Asset Purchase Agreement and they therefore refused to make payments under the Agreement, claiming that they were induced to enter into the Agreement by fraudulent and negligent misrepresentations made by the Purchasers. The Sellers refused to participate in an arbitration of the dispute and then appealed the final award. Justice Pollack dismissed the appeal, relying upon s. 27(3) of the Arbitration Act, 1991, S.O. 1991, c. 17, on the basis that the Sellers had been advised of the date for the arbitration and had filed material, but had failed to participate. They were obliged to raise their objections about the arbitrator’s jurisdiction before the arbitrator at the hearing, rather than by letter.
Originally, the Purchasers commenced an action in the Ontario Superior Court of Justice. The Sellers moved to say the action on the basis of the arbitration clause in the Asset Purchase Agreement. The parties agreed, on consent, to a stay. The Purchasers delivered a Notice of Arbitration on May 17, 2017. An unsuccessful mediation was held on May 29, 2017. Although the parties agreed to be bound by the Rules of the ADR Chambers when they selected an arbitrator, the Sellers refused to execute the Terms of Appointment of the arbitrator.
Thereafter, after submitting their materials for the arbitration and being notified of the arbitration date, October 16, 2017, the counsel for the Sellers wrote to the arbitrator on October 6, 2017, stating that the Sellers would not attend the arbitration and that they would not execute the Terms of Appointment. Counsel for the Purchasers responded to the Sellers’ concerns on October 6, 2017. There was no further communication from counsel for the Sellers.
The arbitrator proceeded with the arbitration, as scheduled. The Sellers did not attend. The arbitrator released the award on November 27, 2017, which the Sellers appealed on the basis that the arbitrator did not have jurisdiction. One of the issues before Justice Pollak was whether the arbitrator erred in proceeding with the arbitration in the absence of the Sellers.
The Purchasers’ position was that any concern about the arbitration process or the arbitrator’s jurisdiction must be raised in a timely manner and must be raised before the arbitrator, who had the jurisdiction to address jurisdictional issues. The Sellers knew or ought to have known that the arbitration would proceed in their absence and they took a risk in not participating in the arbitration.
The Sellers’ position was that the arbitrator did not acknowledge or respond to their objections to the Terms of Appointment. Further, they understood that the arbitration could not proceed unless all parties agreed to the terms and content of the Terms of Appointment.
As Justice Pollack stated, “this understanding was not correct”. She found that the arbitrator was not required to respond to the Sellers’ objections. She also noted that the Sellers did not ask for an adjournment and did not provide a satisfactory explanation as to why the arbitration should not take place in their absence. They were represented by legal counsel and submitted their evidence and material to the arbitrator in support of their position on the issues raised.
Justice Pollack described the standard of review on an appeal of the arbitral award as follows:
“ The standard of review on appeal was summarized as follows by the Court in 869163 Ontario Ltd. v. Torrey Springs II Associates Ltd. Partnership, 2004 ONSC 66298, “appellate courts should not reverse findings of fact unless the trial judge has made a ‘palpable and overriding error’ and that the same degree of deference should be paid to a trial judge’s inferences of fact. Questions of law are subject to a standard of correctness”.”
Further, she stated that:
 The following provisions of the Arbitration Act, SO 1991, c. 17 are applicable:
• Section 46(6) states that if the ground alleged for setting aside the award could have been raised as an objection to the arbitral tribunal’s jurisdiction to conduct the arbitration or as an objection that the arbitral tribunal was exceeding its authority, the court may set the award aside on that ground if it considers the applicant’s failure to make an objection in accordance with section 17 justified. Reliance on s. 46(6) is discretionary. It has been held that the Court has a discretion under s. 46(6) of the Act to set aside the arbitrator’s award if it considers an applicant’s failure to make an objection in accordance with s. 17 justified.
• Section 17(1) provides that an arbitral tribunal may rule on its own jurisdiction to conduct the arbitration and may rule on objections with respect to the existence or validity of the arbitration agreement.
• Section 17(3) provides an objection shall be made no later than the beginning of the hearing or, if there is no hearing, no later than the first occasion on which the party submits a statement to the tribunal.”
The Sellers submitted that s. 46(6) (the set aside, not appeal, provision) of the Act was not applicable because they did raise an objection with respect to the validity of the Terms of Appointment in a timely fashion in accordance with section 17(1). Justice Pollack disagreed. She found that an objection to jurisdiction must be raised at the beginning of the hearing with each party having the opportunity to make proper legal submissions and most importantly, with the arbitrator having the opportunity to hear these submissions and making a ruling on the issue. She found that the letter sent by the Sellers was not a proper objection on an alleged lack of jurisdiction.
Justice Pollack dismissed the appeal. She found that the arbitrator was correct in proceeding in the absence of the Sellers. The arbitrator had the jurisdiction to hear the dispute pursuant to the consent order of the parties and their agreement on the choice of arbitrator. Most importantly, there was no objection to jurisdiction raised at the hearing. She found that the Act requires that all objections to jurisdiction are to be made before the arbitrator.
Further, she found that the arbitrator was not required to refer to the fact that the Sellers did not appear – they knew of the scheduled date for the hearing and had the obligation to attend. A letter to the arbitrator was not sufficient.
First, the arbitration clause in the parties’ Asset Purchase Agreement must have allowed for an appeal, even though the clause is not cited in Justice Pollak’s decision. The ADR Chambers Arbitration Rules provide for no appeal unless the parties otherwise agree:
“17.4 An award or interim award made under the provisions of these Rules shall be treated as a final award for the purposes of recognition and enforcement by a judicial authority and shall not be subject to any appeal to the courts or otherwise unless the Parties have otherwise agreed or the Law of the Arbitration requires.”
Second, the court did not seem to have been referred to s. 45 (Appeals) of the Ontario Arbitration Act, 1991, or the ongoing debate on the applicability of Canada (Minister of Citzenship and Immigration v Vavilov, 2019 SCC. to appeals of arbitral awards. However, Justice Pollack cited 869163 Ontario Ltd. v. Torrey Springs II Associates Ltd. Partnership, 2004 ONSC 66298, for the applicable standard of review in circumstances in which the parties’ agreement provided for an appeal without leave on errors of law, and errors of mixed fact and law “as if the arbitration had been a trial in the Superior Court of Justice” and cited the test in Housen v Nickolaisen, 2002 SCC 33.
Third, Justice Pollack’s Reasons for Decision were delivered by short endorsement, so the facts have been set out in a summary way. For example, it is not clear why the Sellers moved to stay the Purchaser’s action on the basis of the arbitration clause in the parties’ Asset Purchase Agreement and then objected to the jurisdiction of the arbitrator.