Ontario – Arbitrator jurisdiction – dispute arose from Consent Order after earlier arbitration – #863

In The Joseph Lebovic Charitable Foundation, The Dr. Wolf Lebovic Charitable Foundation, the Estate of Joseph Lebovic and Wolf Lebovic v Jewish Foundation of Greater Toronto and Joseph and Wolf Lebovic Jewish Community Campus, 2024 ONSC 4400, the Court upheld the arbitrator’s order that he had jurisdiction over the parties’ dispute that arose after a Consent Order made in an earlier arbitration. The parties’ first dispute fell within the scope of the arbitration clause in their agreement. They settled that dispute and the arbitrator issued a Consent Order that contained a term that referred, “any disputes regarding the matters referred to in this Order” back to him for resolution.  A second arbitration did not proceed. The same arbitrator was appointed to decide the issues in dispute in a third arbitration. The respondents in the arbitration (“Lebovic”) argued that the arbitrator did not have jurisdiction because the issues raised were grounded in the Consent Order and not in the agreement that contained the arbitration clause.  The arbitrator decided that he had jurisdiction, in part, because: (1) resolving this third dispute would necessarily involve factual consideration of the contract terms, and obligations and conduct of the parties under both the parties’ agreement and the Consent Order; and (2) the issues raised by Lebovic were all grounded in rights and obligations which were initiated by the terms of their agreement. Lebovic maintained their objection and applied to the Court under section 17(8) of the Ontario Arbitration Act, 1991, SO 1991, c. 17, “to decide the matter”. The focus of this case note is the arbitrator’s decision, because the application was decided on the basis of waiver.

Background to the disputes – In 2005, the parties entered into a Donor Agreement, pursuant to which Joseph and Wolf Lebovic agreed to donate, through their charitable foundations, $20 million, in installments, to the Jewish Foundation of Greater Toronto (“the Foundation”). In exchange, the Foundation agreed to name a campus after Joseph and Wolf Lebovic.

The Donor Agreement contained an arbitration clause, which provided that a dispute “arising out of, or in connection with the agreement”, shall be arbitrated.

As a result of various disputes, claimants (“UJA”) brought three arbitrations.

(a) First arbitration – In May, 2015, UJA commenced an arbitration concerning a dispute over the intention of Lebovic to sell a portion of the campus lands and an allegation that the Foundation had failed to make installment payments under the Donor Agreement.

The parties appointed a single arbitrator. The arbitration was resolved by way of a Consent Order dated August 5, 2015, which included a clause referring, “any disputes regarding the matters referred to in this Order” back to the arbitrator for resolution.

(b) Second Arbitration – In 2016, UJA commenced an arbitration requesting that the Lebovic make certain payments set out in the Consent Order, but it did not proceed.

(c) Third Arbitration – In April 2021, UJA commenced a third arbitration by issuing a Notice of Demand for Arbitration, which referred to the Donor Agreement, the Consent Order, and the Ontario Arbitration Act, 1991. The Notice of Demand for Arbitration referred the issues to the same arbitrator, specifically, relating to refinancing the campus property and to the naming rights to the campus.

Lebovic challenged the jurisdiction of the arbitrator to decide the issues raised in the Third Arbitration. By order dated March 15, 2023, the arbitrator found that he had jurisdiction. Later, on July 23, 2023, he issued an Award in which he found in favour of UJA.  Lebovic appealed.

Applicants’ jurisdiction motion – In the interim, Lebovic applied, apparently  pursuant to s. 17(8) of the Arbitration Act, 1991,  for the court to “decide the matter” of jurisdiction on the basis that the arbitrator had erred in finding that he had jurisdiction over the issues raised in the Third Arbitration.  Lebovic’s position appears to have been that the issues raised in the Notice of Demand for Arbitration, while referring to the Donor Agreement, were in fact grounded only in specific paragraphs of the Consent Order because only those paragraphs were invoked. Therefore the arbitration clause did not apply and the arbitrator had no jurisdiction.

The Court summarized the arbitrator’s decision that he had jurisdiction as follows:

a.  The continuity of process was recognized in the Consent Order under which the arbitrator was to deal with, “any disputes regarding matters referred to in this Order.” Given his prior involvement in the arbitration brought pursuant to the Donor Agreement, “any dispute” under the Consent Order “would necessarily involve factual consideration of the terms, and obligations and conduct of the parties under both the [donor agreement and consent order].”

b.  The issues raised by UJA were all grounded in rights and obligations which were initiated by the terms of the Donor Agreement. In the Notice of Demand and the pleadings delivered by both parties, “there is clearly a factual relationship to be considered between the [donor agreement and the consent order].”

c.  The arbitrator was satisfied that it was in law and in equity reasonable and practical not to parse the language of each of the agreements in a way that would preclude consideration of the evidence that clearly bound the parties in a continuing relationship under both agreements.

d.  Prior to bringing the jurisdiction motion, conduct of Lebovic in the arbitration assumed the jurisdiction of the arbitrator for both claims.

The Court found that Lebovic had, by their conduct, agreed to refer all matters in dispute to arbitration and waived their right to raise any jurisdiction objection by (among other things):

  • bringing a counterclaim seeking relief which they now argued the arbitrator had no jurisdiction to address, which they asked to be heard with the claim on the basis that the arbitrator had the jurisdiction to hear them both;
  • issuing a Notice of Demand for Arbitration raising the same issues raised in the Third Arbitration commenced by the UJA, in which they invoked the Consent Order and the Donor Agreement;
  • waiting almost 3 months after these steps and 18 months after the UJA had issued their Notice of Demand for Arbitration to raise a jurisdiction objection; and
  • the jurisdictional challenge arose well after Lebovic had already explicitly confirmed the arbitrator’s jurisdiction.

Lebovic argued that they were not out of time to object because s. 17(3) of the Act states that a party which has a jurisdictional objection, “shall make the objection 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.” They argued that because the hearing began on October 24, 2022, they were not out of time to make their objection.

The Court disagreed and referred to s. 4(1) of the Act, which states in essence, that a party who has participated in an arbitration despite being aware of non-compliance with the Act or the arbitration agreement, and does not act within the time limit or, if none is provided, within a reasonable time, shall be deemed to have waived the right to object. She found that this section does not preclude a finding that, by its conduct, the party has waived its right to arbitrate or that the party has agreed to remit certain issues to the arbitrator, which could necessitate a waiver of a jurisdictional challenge. It found that Lebovic’s argument that they could take steps that were consistent with accepting the arbitrator’s jurisdiction and then raise a jurisdictional objection so long as they did so before the hearing was “illogical”.

Therefore, the Court dismissed the application without considering “whether the relief sought fell within the scope of the consent order, and was thus properly before the Arbitrator”.  But the Court noted that the arguments of UJA were compelling – although they were not set out in the decision.

Editor’s Notes:

First, the Court issued its decision by way of endorsement, which no doubt was sufficient for the parties (because no appeal was permitted under s. 17(9)), but leaves us without the benefit of the detailed submissions of the parties (particularly UJA).  The arbitrator’s reasoning, as summarize by the Court, is unclear. If it means that the arbitrator determined that he had jurisdiction because the dispute raised in the Third Arbitration involved the same facts that underlay the dispute in the First Arbitration and the same evidence that was relevant to it, this is not the jurisdiction test. But he also may have based his decision on the fact that the issues raised by UJA all fell within the scope of the arbitration agreement.

It seems to me that the jurisdiction question before the arbitrator raised two issues.

The first was whether the dispute in the First Arbitration fell within the scope of the arbitration clause. Because the parties settled that dispute on terms that were recorded in a Consent Order and there is no suggestion that any party reserved its rights on this issue, the parties can be assumed to have accepted that the arbitrator had jurisdiction. Alternatively, the parties waived their rights to object to the arbitrator’s jurisdiction with respect to the issues covered in the Consent Order.

The next question was the effect of the language in the Consent Order that, “any disputes regarding the matters referred to in this Order” were to be referred back to the arbitrator for resolution. Because the only matters covered by the Consent Order were arbitrable under the arbitration agreement, it follows that the arbitrator had jurisdiction to resolve in the Third Arbitration those issues that were subject to the arbitration agreement, in respect of which he reserved jurisdiction. This seems to be the conclusion the Court would have drawn.

Second, the Court found that the effect of Lebovic’s position was that the arbitrator would deal with certain issues between the parties, but that another, parallel arbitration would have to be convened to deal with related issues because even though they were referred to in the Consent Order, they were not closely enough connected. She found that this would result in parallel arbitrations which would cause delay, excess costs, confusion and the potential for inconsistent findings. In fact, this outcome seems unlikely. If any of the issues raised in the Third Arbitration did not fall within the scope of the arbitration agreement, there was no agreement to arbitrate and unless the parties reached a new agreement, those issues would be resolved in the courts.

Third, s. 17(3) of the Arbitration Act, 1991, is intended to require parties to object to jurisdiction early on, either no later than submitting the first statement or the beginning of the hearing, rather than waiting to see how the arbitration hearing goes before raising a jurisdiction objection.   However, as this case shows, prudence requires raising the objection early to avoid a finding of waiver. In this case, the Court concluded with the view that Lebovic’s “last-minute jurisdiction challenge was strategic, not genuine.”