In Fogler, Rubinoff LLP v Houle, 2021 ONSC 5626, Justice Vermette heard two applications following an arbitration concerning the assessment of two accounts rendered by applicant, Fogler, Rubinoff LLP, to its clients, respondents Conrad and Sheila Houle. The arbitrator issued an award requiring the respondents to pay. After they did not do so, Foglers brought an enforcement application pursuant to s. 50 of the Ontario Arbitration Act, 1991, S.O. 1991, c. 17. Upon such application, the court “shall” grant judgment so long as the requirements of s. 50(3) are not met – the appeal/set aside deadline has not yet elapsed, there is a pending appeal/set aside application, or the award has been set aside or the arbitration is the subject of an award of a declaration of invalidity. In other words, the merits of the award are not relevant. The respondents did not initially appeal the award, but then brought a cross-application – challenging both jurisdiction and the merits – seeking to set aside the award pursuant to s. 46(1)3 of the Arbitration Act or, in the alternative, leave to appeal the award under s. 45(1). Justice Vermette found that the set aside application was really a request to review the substance of the award on the basis that the arbitrator’s decision was unreasonable or incorrect. She also dismissed the motion for leave to appeal on the ground that it did not raise a question of law. Whether the facts met the required legal test was a matter of mixed fact and law. Therefore, given the dismissal of the respondent’s cross-application, she granted the Foglers enforcement application.
After a five-day arbitration relating to the assessment of the two Foglers accounts, the arbitrator released an award on December 7, 2020, in which he ordered the respondents to pay to Foglers a portion of the sum demanded. The respondents had argued that nothing further was to be paid and that sums previously paid were to be refunded to them on the basis of Foglers’ alleged negligence and unprofessional conduct.
The amount remained unpaid and Foglers applied to the court to enforce the costs award under s. 50 of the Arbitration Act.
In response, the respondents brought a cross-application and argued that the award should be set aside under s. 46(1)3 of the Act because it dealt with “a dispute that the arbitration agreement does not cover or contains a decision on a matter that is beyond the scope of the agreement”. Justice Vermette relied upon the decision of the Ontario Court of Appeal in Alectra Utilities Corporation v Solar Power Network Inc., 2019 ONCA 254, at paras. 25 to 27, for the proper analysis:
“[25] Although the court cannot apply s. 46(1)3 without having regard to an arbitrator’s decision, the court’s authority to set aside an arbitration award under that subsection depends on the mandate the arbitration agreement confers on the arbitrator to resolve a particular dispute. In order to succeed on an application to set aside an arbitration award, an applicant must establish either that the award deals with a dispute that the arbitration agreement does not cover or contains a decision on a matter that is beyond the scope of the arbitration agreement.
[26] For example, if an arbitration agreement provides that an arbitrator shall resolve a particular question and the arbitrator does so, the court has no authority to set aside the award on the basis that the arbitrator’s decision is unreasonable or incorrect. If, however, in the course of resolving the particular question remitted the arbitrator asks and answers an additional second question, the award may be set aside – not because the arbitrator’s answer to the second question is unreasonable or incorrect, but because the arbitrator had no authority to reach any conclusion on the second question at all.
[27] In short, s. 46(1)3 requires that arbitrators act within the bounds of the authority granted by the arbitration agreement pursuant to which they are appointed – no less, but no more. Section 46(1)3 is not an alternate appeal route and must not be treated as such. [Emphasis in the original.]”
In this case, the parties had entered into an Agreement to Arbitrate and Terms of Appointment re Arbitration, which provided that the Ontario Arbitration Act would apply and that the parties would be bound by the ADR Chambers Arbitration Rules, which provided that the costs of the arbitration would be fixed by the arbitrator. Therefore, Justice Vermette found that the arbitrator had the authority to rule on the issue of the costs of the arbitration:
“[9] According to the Court of Appeal, subsection 46(1)3 of the Act sets out a jurisdictional question that must be answered correctly, and it neither requires nor authorizes review of the substance of an arbitrator’s award: see Alectra at para. 43. Jurisdiction is determined not by asking whether the arbitrator made a correct decision, but by asking whether the arbitrator had the authority to make the inquiry that they made: see Parc-IX Limited v. The Manufacturer’s Life Insurance Company,2021 ONSC 1252 at paras. 40-42. Here, there is no doubt that the Arbitrator had the authority to determine the issue of costs and that he was correct in assuming jurisdiction over the issue of the costs of the arbitration.”
She found that the arbitrator’s consideration of “additional factors” did not constitute “separate questions, disputes or decisions” outside his jurisdiction. The only decision in the cost award related to the costs of the arbitration. In fact, the respondents were asking the court to set aside the costs award on the ground that the arbitrator’s decision was unreasonable or incorrect or that his consideration of certain factors was unreasonable or incorrect, “however, given that the issue of costs is within the scope of the arbitration agreement, the court has no authority to set aside the Costs Award or to review its substance”. Therefore, she denied the respondents’ application to set aside the costs award.
The respondents also sought leave to appeal the arbitrator’s award pursuant to s. 45(1) of the Act on the ground that the arbitrator had made errors of law by departing from the “established costs paradigm” in assessment cases. Justice Vermette found that the “costs paradigm” sets out general rules, but not strict ones that apply in every case without exception. In this case, the arbitrator explained why the arbitration was not a typical costs assessment – the respondents alleged (and did not prove) negligence and unprofessional conduct, which is not a matter normally within the jurisdiction of the assessment officer, as a result of which the cost assessment became adversarial. Therefore, the arbitrator did not make an error of law by exercising his discretion on wrong principles. Nor did the arbitrator incorrectly state or apply the legal test for when a lawyer may claim remuneration for lost opportunity while acting as a self-represented litigant. Justice Vermette concluded that the alleged error was one of mixed fact and law, specifically whether the facts and evidence satisfied the legal test, not an error of law; therefore, she denied the respondents leave to appeal.
Foglers motion to enforce the costs award was granted; given the dismissal of the set aside and leave to appeal applications, there was no basis to deny enforcement.
Editor’s notes:
First, this is the latest in a long (and ever growing) list of cases in which the unsuccessful party to an arbitration seeks to overturn an award because that party is not happy with the outcome. The parties’ post-dispute arbitration agreement provided that the Ontario Arbitration Act, 1991 and the ADR Chambers Arbitration Rules would apply. Both had appeal provisions. Section 45 of the Arbitration Act allows for an appeal on a question of law, with leave. The ADR Chambers Rules provides that, “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”. It may be that because the negligence of the lawyer was raised, both parties wanted appeal rights. But otherwise, given the amount at issue, this appears to be the kind of case in which the parties might have chosen finality and expressly opted out of an appeal altogether. (The amount at issue in the costs arbitation was $130,485, which both the arbitrator and Justice Vermette ordered the Houles to pay.)
Second, s. 37 of the Ontario Arbitration Act, expressly provides that the arbitrator’s award binds the parties, unless it is set aside or varied by the court. However, where (as in this case) a party does not comply, the other party may apply to the court pursuant to s. 50(1) of the Arbitration Act for a judgment enforcing the award, after which the party seeking enforcement has all remedies as are available to enforce a court order. Upon such application, the court is not to embark upon a review of the merits of the award. In this case, the respondents did not appeal the award, but later brought a cross-application for leave to appeal/set aside in response to the application for enforcement, which effectively circumvented the straightforward enforcement provision in the Arbitration Act. It does not appear that Foglers made this argument to Justice Vermette to justify a higher costs order against the respondents. The issue of the costs of the application/cross-application before Justice Vermette was dealt with in a separate costs endorsement in Fogler, Rubinoff LLP v Conrad Houle and Sheila Houle, 2021 ONSC 6064. Justice Vermette ordered the Houles to pay Foglers’s costs in the amount of $5,525.47 – below the Foglers request of $69,127.26 on a substantial indemnity basis. Foglers sought a higher costs award because the respondents “took unfounded positions” and that it was entitled to be compensated for its time and resources expended for no good reason. Justice found that Foglers had failed to prove its loss of opportunity and that the allegations made by the respondents against Foglers did not warrant substantial indemnity costs.