Ontario – Arbitration Act does not preclude court staying execution of final award under Courts of Justice Act – #444

In Zenith Aluminum Systems Ltd. v. 2335945 Ontario Inc., 2021 ONSC 1128, Mr. Justice Benjamin T. Glustein dismissed attempts to limit the court’s jurisdiction to stay execution of final arbitral awards to only those circumstances set out in section 50(5) Arbitration Act, 1991, SO 1991, c 17. Glustein J. held that section 50(5) does not preclude a stay of execution under section 106 of the Courts of Justice Act, R.S.O. 1990, c. C. 43.  Glustein J. refused, however, to accept that Rule 20.08 of the Rules of Civil Procedure, RRO 1990, Reg. 194 authorized courts to stay execution of final awards. Glustein J. observed that Rule 20.08 limited its application to summary judgments and, on the record before him, the final awards “are treated as final judgments”, issued by an arbitrator who the parties “asked to conduct the trial” of their dispute.

2335945 Ontario Inc. cob as Momentum Developments (“Momentum”) develops and owns a condominium project (“Project”).  Zenith Aluminum Systems Ltd. (“Zenith”) provides services including aluminum window-wall systems for construction projects. Momentum accepted Zenith’s June 9, 2014 final budget quotation (“FBQ”) of $2,997,500.00 to supply a window-wall system for the Project.

The parties disputed the scope of the work for the budget regarding whether the FBQ required Zenith to supply or install guardrails or privacy screens and whether the FBQ included those elements (“Railing Dispute”).  As the approximate value of the railing work which Momentum considered included in Zenith’s FBQ, Momentum withheld $300,000.00 from Zenith’s draws.

Zenith served a May 9, 2016 notice of arbitration (“Notice”) for the Railing Dispute.  The parties agreed on an arbitrator, scheduled their arbitration hearing for November 2016 but rescheduled it for April 2017.  Prior to that new date, the parties disputed the pre-arbitration steps to be taken and signed no arbitration agreement at that time.

Concerned about a limitation period which could expire in the Railing Dispute, Zenith required that Momentum sign a tolling agreement or Zenith would initiate an action in Ontario Superior Court. Momentum agreed to the tolling agreement and, having signed it, e-mailed it May 15, 2017 to counsel for Zenith.  Glustein J. records that the agreement was “inadvertently diverted to a “junk” email folder”. 

Zenith initiated litigation against Momentum and its directors (“Breach of Trust Action”).   Momentum filed a June 29, 2017 statement of defence and counterclaim.   The following year, Zenith applied on May 22, 2018 for an order compelling Momentum to submit the Railing Dispute to arbitration.  On July 7, 2018, Madam Justice Carole J. Brown in Zenith Aluminum Systems Limited v. 2335945 Ontario Inc., 2018 ONSC 4199 held that Zenith and Momentum had agreed to submit their Railing Dispute to arbitration and ordered them to proceed before the arbitrator they had chosen.

For the earlier Arbitration Matters note on that decision, see “Court refuses to accept unilateral revocations of parties’ unwritten agreement to arbitrate – #097”. Brown J. kept the bar firmly high, tripping claims that parties could unilaterally revoke their earlier unwritten agreement to arbitrate.  Despite both parties, at separate moments, asserting that they were no longer bound by their agreement, Brown J. agreed with Zenith who now wanted to continue its arbitration despite having initiated litigation. She held that the parties’ conduct had affirmed their ongoing agreement to arbitrate and dismissed Momentum’s claims that both parties had revoked their agreement. Zenith’s earlier written notice that it withdrew its notice to arbitrate and Momentum’s later change of heart were each insufficient by themselves to serve as revocation. Applying “ordinary rules of contract law“, an arbitration agreement could only be revoked by an agreement of both parties and not unmatched, unilateral revocations.

Glustein J. noted that Brown J. did not order a stay of the Breach of Trust Action but, advised the parties that they were not precluded from seeking a stay to avoid the risk of “unnecessary duplication of resources”.

Following Brown J.’s decision, Zenith and Momentum did engage in arbitration but subject to certain terms set out in an agreement dated February 19, 2019.  Each preserved its right to seek or oppose a stay of enforcement of the arbitrator’s award but agreed that the award would “final, binding and not subject to appeal” and also added the following to their agreement to arbitrate.

The parties agree that the final and binding nature of the Award does not preclude either party from raising any issues in Superior Court Action CV-17-588632 regarding the enforcement of the Award of the Arbitrator”.

Following a February 20 and 22, 2019 hearing, the arbitrator issued a September 3, 2019 award (“Award”) and a November 26, 2019 interest and costs award (“Costs Award”). 

Unsatisfied with the Award and Costs Award (“Awards”), Momentum sought to stay the application of the Awards under section 106 of the Courts of Justice Act, R.S.O. 1990, c. C. 43 (“CJA”) and under Rule 20.08 of the Rules of Civil Procedure, RRO 1990, Reg. 194 (“Rules”) pending disposition of the Breach of Trust Action Zenith had brought against Momentum and its directors.  Satisfied with the Awards, Zenith applied under section 50 of the Arbitration Act, 1991, SO 1991, c 17 to enforce the Awards.

Glustein J. identified three (3) issues raised by the parties’ applications:

Issue (i) – Does section 50 of the Arbitration Act preclude the court from staying a final arbitral award? Glustein J. addressed this issue at paras 29-39 of his reasons.

Zenith argued that in light of section 50 a court cannot grant a stay of a final award unless the “limited” conditions in section 50(5) are met, reasoning that section 50(3) required enforcement unless those section 50(5) conditions exist. 

Glustein J. disagreed. He reasoned that sections 50(3) and 50(5) must be read with section 50(8) which stipulates as the closing provision to section 50 that “[t]he court has the same powers with respect to the enforcement of awards as with respect to the enforcement of its own judgments”.

Relying on 1247902 Ontario Inc. v. Carlisle Power Systems Ltd., [2003] O.J. No. 6300 (Div. Ct.), aff’d [2005] O.J. No. 118 (C.A.) (unavailable online), Glustein J. observed that the Court of Appeal had decided that the courts do have “in very rare circumstances” discretion under section 106 of the CJA to stay enforcement of a final judgment.

[39] Consequently, I do not accept Zenith’s submission that the only circumstances in which an arbitral award can be stayed are those set out in s. 50(5). The requirement under s. 50(5) that the court enforce an arbitral award does not preclude a stay of execution under s. 106 of the CJA. Section 50(8) renders a final arbitral award the same as a final judgment, permitting a stay under the analysis in Carlisle”.

Issue (ii) – If section 50 of the Arbitration Act does not preclude the court from staying a final arbitral award, should the court stay the Arbitral Awards under section 106 of the CJA? Glustein J. addressed this issue at paras 40-72 of his reasons.

Glustein J. applied the reasoning in both of the 1247902 Ontario Inc. v. Carlisle Power Systems Ltd., [2003] O.J. No. 6300 (Div. Ct.), aff’d [2005] O.J. No. 118 (C.A.) to decline to stay the Awards under section 106 of the CJA.  In doing so, he highlighted statements made in each decision, by the Divisional Court and on appeal, which underscored the finality of judgments.  As an example, at para. 46, Glustein J. excerpted the following from the decision by the Divisional Court.

It has always been fundamental that a judgment is final and that there is no jurisdiction in the court to prevent or limit the exercise of a judgment creditor’s right to enforce, in the absence of such power being expressly conferred. However, since the enactment of s. 106 CJA, in one case, Zanetti Estate v. Roltford Developments Ltd., [1990] O.J. No. 2584 (Ont. S.C.); (appeal dismissed [1992] O.J. No. 1430 (Ont. C.A.)) a stay was granted to prevent execution of a final judgment. In that case, the motions judge granted the stay because he determined the actions of the execution creditor to be oppressive. That differs from the present case where no such finding was made by the motions judge. Moreover, in Zanetti (supra) the motions judge did not base his decision on an examination of the equities, as appears to have been the case here”.

See also the excerpts included at para. 48.

Having identified the approach required, Glustein J. at para. 54 and following applied it to the facts before him.  Among other comments supporting his decision not to exercise his discretion under section 106 of the CJA to stay the execution of the Awards, Glustein J. spoke to the overlap between the arbitration and the litigation.

[58] The Breach of Trust Action does not render the enforcement of the Arbitral Awards oppressive, vexatious, or an abuse of process. The trust claim is a separate cause of action from the contract claim. It is not necessary for Zenith to establish a breach of trust as a prerequisite to being entitled to execution on and satisfaction of its contract claim in the Breach of Trust Action, of which the Arbitral Awards constitute the most significant part of the damages claimed”.

Glustein J. further addressed Zenith’s strategy in initiating its Breach of Trust Action and the impact of Zenith overlooking Momentum’s communication of the tolling agreement.

[60] The Breach of Trust Action was brought to protect against the expiry of a limitation period in circumstances where Zenith mistakenly believed there was no signed tolling agreement. The claim is insurance to hold the principals accountable for the construction proceeds received or else there would be no repercussions for a corporate defendant who absconds with construction proceeds to the detriment of those entities it retained.

[61] Consequently, while a judgment against Momentum under the contract is a required element for the breach of trust claim, which has now been obtained through the Arbitral Awards, that judgment does not establish personal liability of the directors until a breach of trust is established”.

Glustein J. reiterated the Divisional Court’s concern that staying the Awards would “frustrate commercial enterprise and … would encourage a whole new area of litigation”.

Issue (iii) – If a stay is not available under section 106 of the CJA, is a stay otherwise available under Rule 20.08 of the Rules? Glustein J. addressed this issue at paras 73-82 of his reasons.

In contrast to the result on the role of section 106 of the CJA, Glustein J. disagreed with Momentum on using Rule 20.08 as a source of authority to stay the execution of a final arbitration award.  That rule addressed summary judgments.

Rule 20.08 Where it appears that the enforcement of a summary judgment ought to be stayed pending the determination of any other issue in the action or a counterclaim, crossclaim or third party claim, the court may so order on such terms as are just”.

In addition to noting that Momentum provided no Ontario precedent in support of applying Rule 20.08 to final arbitration awards, Glustein J. held that Rule 20.08 on its face did not apply to arbitration awards.  On the record before him, Glustein J. added that the Awards “were not summary judgment decisions” but are “treated as final judgments, determined after a full hearing on the merits”.

[77] The Arbitrator was not asked to determine whether there was a genuine issue requiring a trial, as would have been the test for summary judgment under Rule 20.04. To the contrary, the Arbitrator was asked to conduct the trial of the Railing Dispute, which he did”.

Glustein J. closed with an additional observation that Momentum’s approach would be inconsistent with section 50(8).

urbitral notes – First, in Zenith Aluminum Systems Limited v. 2335945 Ontario Inc., 2018 ONSC 4199 Brown J. issued the following comments in her decision when referring Zenith and Momentum to arbitration.

[15] I recognize that allowing a court action in an arbitration to proceed when claims are overlapping may result in an unnecessary duplication of resources. In the event that it becomes an issue, the parties are not precluded from attending before me as regards a stay of the litigation pending the arbitration hearing.

[16] I order that the arbitration be completed by the end of this year, if a mutually available date before the end of the year can be accommodated by the parties and the arbitrator. If not, I am fully confident that the parties can work out an alternate date with the arbitrator. If that is not possible, they may attend before me on a case conference to schedule the earliest possible date available to the parties and the arbitrator”.