In Stronach v. Stronach, 2025 ONSC 7158, the Parties, who had been embroiled in years of acrimonious litigation related to their family enterprise, agreed to a settlement that included a final-offer (or “baseball”) arbitration to determine the value of the Respondents’ agreed share of the businesses. The Applicants later challenged the arbitral award, which had been rendered by a prominent business valuator. They argued, among other things, that it should be set aside because the Arbitrator relied on an expert report, which was outside his jurisdiction because it did not comply with the valuation standards agreed to by the Parties. The Application Judge dismissed the application, describing it as “very weak” on the purported jurisdictional issue. In substance, he viewed it as a challenge to the merits of the award where there was no appeal. In any event, the Application Judge held that the Applicants had “agreed” to admit the impugned expert report into evidence to challenge its weight. By not objecting to the report’s admissibility at the hearing or to the Arbitrator’s authority to receive it, the Applicants waived their ability to later raise the jurisdictional argument on a setting aside application.
The case raises a number of procedural fairness issues, but this summary will focus on jurisdiction and waiver issues.
What is Final-offer Arbitration? – A final-offer arbitration process is one where each side presents its best and final offer to the arbitrator, along with evidence and submissions supporting its offer. The arbitrator must then choose one of the offers in its entirety without variation. There can be no compromise award.
The theory behind final-offer arbitration is that the process encourages parties to make reasonable proposals, since an extreme position is less likely to be selected. It is frequently used in business valuation-type disputes.
Facts – As part of the settlement described above, the Parties agreed to detailed terms that governed the final-offer arbitration process, including that the Arbitrator would render an award with brief reasons. They also agreed that there would be no appeals from the award.
On being appointed, the Arbitrator sent an email asking the Parties to confirm a number of matters, which they did, including that any valuation reports would be Comprehensive Valuation Reports made in accordance with the practice standards of the Canadian Institute of Chartered Business Valuators (“CICBV”).
Subsequently, the Arbitrator issued Procedural Order No. 1, which repeated many of the terms from the settlement agreement including the following: “Nothing herein shall be taken as restricting the arguments any party may make as to the methodology by which fair market value is to be determined”.
In support of their offer, the Respondents submitted a report by a CICBV member, who testified that his report was a Comprehensive Valuation Report under CICBV standards. He also testified that in preparing his report he had been instructed by the Respondents, unusually, to take the values provided by two investment bankers as “givens” in his report rather than engaging in his own effort to value those parts of the businesses. The investment bankers were not chartered business valuators. Throughout the arbitration, the Applicants sought to establish that the Respondents’ expert’s report was not a Comprehensive Valuation Report under applicable CICBV standards and should be disregarded or given little weight.
In the award, the Arbitrator stated that although he did not accept the investment bankers’ opinions on value, he was satisfied with their valuation methodology. On that basis, he found that the Respondents’ expert’s reliance on the investment bankers’ opinions, was not “fatal to its conclusions” and ultimately found that the Respondents’ offer was “more representative of fair market value.”
The Applicants, having given up all appeals (as one can do under the Ontario Arbitration Act, 1991, S.O. 1991, c. 17) applied to set aside the award.
Application Judge’s Decision –
(i) Jurisdiction – Before he began his analysis of the jurisdictional issue, the Application Judge noted the difference between an appeal of award and an application to set it aside on jurisdictional grounds pursuant to section 46(3)(1) of the Ontario Arbitration Act. He stated:
“In making a claim under ss. 46 (1)(3), the Applicants are not saying that Arbitrator made a simple mistake of fact or an error of law. Rather, they are claiming that he went completely off the rails. He resolved a dispute that was beyond what the arbitration agreement empowered to him to resolve.” (para. 42).
He emphasized the narrow view the Ontario Court of Appeal has taken of section 46(3)(1) citing statements in Alectra Utilities Corporation v. Solar Power Network Inc., 2019 ONCA 254 (“Alectra”) and Mensula Bancorp Inc. v. Halton Condominium Corporation No. 137, 2022 ONCA 769 (“Mensula Bancorp”) to the effect that the section requires that the court not interfere with an arbitrator’s award as long as the issue decided was properly before the arbitrator.
The Applicants argued that the Arbitrator had no jurisdiction to rely on the Respondents’ expert’s report because it did not comply with the Parties’ agreement by email that all Comprehensive Valuation Reports would be in accordance with the practice standards of the CICBV.
The Application Judge resolved the issue on the basis of waiver but made a number of comments on the merits of the jurisdictional argument in obiter.
First, the Application Judge stated that with a setting aside application under s. 46 (1)(3) the question before him was whether the Arbitrator’s award decided an issue that was properly before the Arbitrator. How the Arbitrator actually dealt with resolving the issue was not the subject of an application under s. 46 (1)(3) of the Arbitration Act. Here, the issue before the Arbitrator was which offer was more representative of fair market value (para. 73) and that was what the Arbitrator’s award did.
In arriving at this conclusion, he found that there was no agreed restriction, as alleged by the Applicants, on the methodology to determine fair market value. This was because the email exchange between the Arbitrator and the Parties did not expressly amend the provision in the settlement agreement stating that there would be no restriction on the methodology to determine fair market value, and Procedural Order No. 1 subsequently adopted that provision from the settlement agreement, thereby confirming the Parties understanding (para. 23).
The Application Judge also pointed to the Applicants’ conduct at the hearing, which he said reflected a “strategic choice” inconsistent with the position they now advanced. Before the Arbitrator, they argued that the Respondents’ expert’s report should not be relied upon because it did not comply with CICBV standards for a Comprehensive Valuation Report. They did not submit that this issue went to the arbitrator’s jurisdiction or that he was precluded by the Parties’ arbitration agreement from hearing this evidence. Instead, they “consented” to its admission. This conduct was inconsistent with the existence of the restriction they now alleged.
(ii) Waiver – Turning to waiver, the Application Judge concluded, that the Applicants waived their ability to raise the jurisdictional argument. He found the Applicants would have known if the Respondents’ expert’s report was in compliance with the CICBV requirements shortly after it was delivered. The Application Judge said:
“Instead of raising their jurisdiction objection on a timely basis as required, the Applicants made a choice to agree to allow the [expert] report into evidence to then challenge it in their evidence and submissions. They hoped to undermine the expert report on its merits so that the Respondents would then have no valid evidence left before the Arbitrator to compete against the [Applicants’] report.” (para. 65)
The Application Judge cited section 4 of the Ontario Arbitration Act, which provides that any objection based on non-compliance with an arbitration agreement must be raised within a reasonable time or is waived. He also referenced a similar provision (section 17(5)) specific to jurisdictional issues. He said that section 4 was designed to address the situation in this case:
“A party cannot have it both ways. If parties allege a fundamental defect in an arbitrator’s authority or non-compliance with the arbitration agreement, they are required to speak up right away or forever hold their peace.”(para. 67)
Here, by deciding to address the issue on the merits at the hearing rather than as one going to jurisdiction, they waived any entitlement to do so later as part of a setting aside application on jurisdictional grounds: “You can’t agree to participate in an arbitration when you know of a reason to object to the arbitrator’s authority and then wait to see if you win or lose before objecting” (para. 69).
Commentary
- This case illustrates the diverging approaches being taken by the Ontario courts from the British Columbia courts on errors of law and the scope of an appeal versus a setting aside application. See the discussion in Lisa Munro’s case note: British Columbia – On appeal, question of procedural fairness is question of law – #934
- The Application Judge made an interesting comment on the sufficiency of reasons in final-offer arbitrations. In response to the Applicants’ argument that the Arbitrator’s reasons were inadequate to disclose his chain of reasoning, the Application Judge said: “In a baseball arbitration, I do not know what more there is to say than “On my review of the evidence concerning fair market value of the Family Company, I find offer ‘X’ to be more representative of fair market value than offer ‘Y.’” (para. 100) This is considerably less than the reasons the Arbitrator provided in this case.
- The Application Judge also rejected the Applicants’ argument that the Arbitrator elicited evidence through questioning on the last day of the hearing that they had no opportunity to address, thereby denying them procedural fairness. The Application Judge noted that an arbitrator is permitted to ask questions, even if they are not helpful to a party’s case. In any event, he found that the Arbitrator did not deny the Applicants an opportunity to present their case, as they never requested any further steps in response to the questioning. Instead, he said, the Applicants “chose their strategies and tactics”.