In Burwell v. Wozniak, 2023 ONSC 1685, Justice Jensen of found that the Arbitrator erred in law by allowing a promise in an email to overwhelm the words of a subsequent formal trust agreement. The Court varied the Arbitrator’s decision about the formation of a trust, holding that the Arbitrator’s reliance on surrounding circumstances while downplaying the words of the subsequently formalized agreement, gave rise to an extricable error of law.
The Underlying Dispute- The Applicant Greg Burwell was the co-founder of a company called Fusebill, in which he held 4.5 million Class ‘A’ Common Shares when the company was incorporated. He later subscribed for a further 231,525 shares (combined, the “Personal Shares”).
Meanwhile, Burwell was in a conjugal relationship with the Respondent, Marta Wozniak. Burwell emailed Wozniak during a period of separation in October, 2011, promising, among other things, to appoint Wozniak as “the sole beneficiary of the family trust which will hold all Fusebill shares . . . once we sign this document 50% of the 4.5 million shares of Fusebill are yours regardless of what happens” and that Wozniak would be entitled to 100% of the shares if Burwell were to die (the “Email”). Burwell and Wozniak later formalized the Family Trust on 16 December, 2011.
On 23 December, 2011, the Family Trust subscribed for 4.5 million Class ‘A’ Common Shares of Fusebill (the “Family Trust Shares”). Importantly, Burwell did not transfer his Personal Shares to the Family Trust.
Fusebill underwent a reorganization pursuant to which the Family Trust Shares were converted to 450,000 shares, while Burwell’s Personal Shares were converted to 1,737,203 shares. Burwell then transferred his Personal Shares to his personal holding corporation.
Burwell and Wozniak’s relationship ended in 2014. In 2021, when Fusebill had a prospective buyer, Burwell and Wozniak reconnected to discuss the Family Trust. Wozniak asserted a 50% interest in both the Family Trust Shares and Burwell’s Personal Shares. To facilitate the sale of Fusebill, the parties entered into an interim agreement and an escrow agreement to place “50% of all amounts to be paid” to Burwell’s personal holding corporation with respect to the sale of both the Family Trust Shares and Burwell’s Personal Shares (collectively referred to as the “Fusebill Shares”).
The purchase price for the sale of Fusebill had two elements. First, the buyer would make cash payments to all Fusebill shareholders in exchange for their shares. Second, Burwell would receive, through his personal corporation, equity in the parent company of the buyer in addition to cash (the “Rollover Consideration”).
The Arbitrator’s Decision –The Arbitrator found that Wozniak was entitled to a 50% interest in the proceeds from the sale of the Fusebill Shares and the Rollover Consideration. The Arbitrator held that the Email satisfied all elements of an express trust, with the subject matter of the trust being the Fusebill Shares. The Arbitrator further held that the Family Trust agreement merely formalized the promises contained in the Email. Finally, the Arbitrator concluded that the Rollover Consideration constituted part of the purchase price for the Fusebill Shares and that Wozniak had an interest in the Rollover Consideration as well.
The Court’s Decision – Justice Jensen began by setting out the criteria for granting leave to appeal an arbitral award pursuant to s. 45(1) of Ontario’s Arbitration Act, 1991, S.O. 1991, c. 17. Wozniak argued that the criterion under s. 45(1)(b) was not met because the alleged errors of law, if proven, would not significantly affect the parties’ rights in the
arbitration, nor would they decisively alter the outcome of the dispute. Justice Jensen disagreed, finding that leave to appeal was warranted on the grounds that the case raised a question of law that could impact the Arbitrator’s decision with respect to a relatively large sum (approximately $1.5 million).
Justice Jensen then turned to the applicable standard of review on appeals of arbitral awards noting the Supreme Court of Canada decisions in Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65 and Wastech Services Ltd. v Greater Vancouver Sewerage and Drainage District, 2021 SCC 7.
Justice Jensen held that the Arbitrator erred in law finding that the Email created an express trust, while ignoring the Family Trust agreement. She recognized that courts should be very hesitant to find errors of law in the context of contractual interpretations by arbitrators. However, the Court cited the Supreme Court of Canada decisions in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, and Evans v Teamsters Local Union No 31, 2008 SCC 20, for the principle that failure to consider relevant factors in contractual interpretation, or consider relevant evidence, can constitute an error of law.
In reviewing the Arbitrator’s finding that the Email created an express trust, Justice Jensen first noted that Burwell’s promise in the Email would not have been enforceable without the delivery of the subject matter of that promise, and that the subject matter of the Family Trust (which was the Family Trust Shares), differed from the subject matter of the promise (which was the Fusebill Shares). In Justice Jensen’s view, this created a conflict as to the subject matter of the trust allegedly created by the Email.
She held that the Arbitrator also erred by overlooking other key differences in the express trust found by the Arbitrator in the Email and the words of the Family Trust agreement. For example, the Family Trust agreement diverged from the Email on the names of the trustees and beneficiaries; and the Family Trust agreement was a discretionary trust, whereas the trust purportedly created by the Email was a bare trust.
Justice Jensen also noted that, in the Email, Burwell appeared to contradict himself by stating that Wozniak would be entitled to 50% of the shares “no matter what happens”, but also stating in the same sentence that Wozniak would be entitled to 100% of the shares if Burwell dies. The Court found that this and other inconsistencies undermined the certainty of the subject matter of the trust purportedly created by the Email.
Ultimately, Justice Jensen held that the Arbitrator erred in overemphasizing the Email, at the expense of the express written language of the Family Trust agreement, leading him to create a new trust based on the Email. This was not only inconsistent with some of the Arbitrator’s other findings, but was also an impermissible use of the surrounding circumstances to interpret the Family Trust agreement. The express words of the written agreement could not be varied, contradicted, or overwhelmed by the Email.
For these reasons, Justice Jensen held that the Arbitrator’s decision with respect to the trusts was both incorrect in law and unreasonable. She varied the Arbitrator’s decision to find that the Email did not create an express trust and that only one trust existed between the parties, which was the Family Trust. Therefore, Wozniak was only entitled to her beneficial interest in the Trust Shares, along with the other beneficiaries.
The Court’s decision in Burwell can be added to the string of decisions in which courts have opted not to resolve the outstanding question of the effect of Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65, on the applicable standard of review on a statutory appeal of an arbitral award, which Justice Jensen aptly recognized as a “thorny issue”. The case refers to other Ontario decisions that have similarly skirted the issue, such as Ontario First Nations (2008) Limited Partnership v Ontario Lottery and Gaming Corporation, 2021 ONCA 592; and Tall Ships Development Inc. v. Brockville (City), 2022 ONCA 861. See also the recent comment on this issue in Mann v Grewal, 2023 BCCA 88 (Arbitration Matters Case 728: BC—Court of Appeal finds extricable error in contract interpretation (again)).
As Justice Jensen recognized, courts should be very hesitant to find extricable errors of law in the context of contractual interpretation by arbitrators. This case follows other recent BC decisions in which extricable errors of law in arbitrator’s contractual interpretation were found, such as the decision in Mann v Grewal, 2023 BCCA 88 (Arbitration Matters Case 728: BC—Court of Appeal finds extricable error in contract interpretation (again)), and Escape 101 Ventures Inc. v. March of Dimes Canada, 2022 BCCA 294, (Arbitration Matters Case 662: BC—Material misapprehension of evidence is an extricable error of law), leave of which was refused by the Supreme Court of Canada. Query whether this case signals a move away from the Ontario line of cases which have taken a narrower approach to appeals of arbitral awards, as described by author Lisa Munro and others in their recent article on this topic.