Ontario – Arbitrator to rule on own jurisdiction and addition of party – #791

In Toronto Standard v Distillery SE, 2023 ONSC 5340, the Court upheld the parties’ agreement to appoint a specific arbitrator, and also determined that issues relating to the arbitrator’s jurisdiction and mandate, and the addition of a party, should be decided by the arbitrator and not the Court. 

Background to dispute – The dispute involved Toronto Standard Condominium Corporation No. 2299 (“Toronto Standard”), a condominium corporation, and Distillery SE Development Corp. (“Distillery”), the developer of that condominium. The parties entered into a tripartite services agreement on May 14, 2012 along with Gooderham, a condominium corporation that owns and manages the neighbouring property, which was also developed by Distillery (the “Shared Facilities Agreement”). That agreement governed the use, maintenance, cost-sharing and other matters relating to the service of units and facilities in the two condominiums.

Commencement of arbitration – Disputes arose between two of the parties to the Shared Facilities Agreement, Toronto Standard and Distillery, relating to cost-sharing and building access. On April 16, 2018, Toronto Standard delivered a notice of arbitration. On May 16, 2018, Distillery delivered its notice of arbitration. On July 24, 2018, the parties reached agreement on the identity of the sole arbitrator to preside over the disputes raised in the parties’ respective notices of arbitration.

A long period followed, during which neither party took any steps to advance the arbitration. 

Then, in December 2021, Toronto Standard retained new counsel. On June 13, 2022, Toronto Standard delivered a fresh as amended notice of arbitration and proposed a different arbitrator.

Consequently, Toronto Standard brought a motion to the Court seeking an order appointing an arbitrator and an order confirming that the arbitrator’s jurisdiction extended to the new issues raised in the fresh as amended notice of arbitration. In response, Distillery  took the position that  Toronto Standard’s fresh as amended  notice of arbitration should be quashed. It argued that, by proposing a new arbitrator, Toronto Standard had repudiated the agreement to appoint the arbitrator that had been initially agreed between the parties. Alternatively,  Distillery argued that new matters were raised in Toronto Standard’s fresh as amended notice of arbitration, which required the addition of Gooderham as a party to the arbitration

Appointment of arbitrator –  The Court ordered that the arbitrator  who had initially been agreed between the parties in 2018 be confirmed as the arbitrator for the dispute. In doing so, the Court noted that Toronto Standard’s new counsel appeared to have been unaware of a previous agreement between the parties to appoint  that arbitrator, but that Toronto Standard had agreed to move forward with the previously appointed arbitrator, and that Distillery had no objection to that arbitrator. Therefore, the parties had an agreement. It found that counsel for Toronto Standard’s proposal for appointment of  a new arbitrator did not repudiate the previous agreement, as this new proposal likely arose from confusion. Moreover, the Court was inclined to confirm the previously appointed arbitrator as that would move the parties forward in their procedure, thereby avoiding further delay.

Jurisdictional issues – The Court noted that, while the parties had agreed to the issues to be decided in arbitration in 2018, any question regarding whether there were new issues raised by Toronto Standard or whether they fell within the arbitrator’s jurisdiction, considering the arbitrator’s mandate, and the parties’ arbitration agreement should be decided by the arbitrator. 

The Court relied on section 17 of the Ontario Arbitration Act, S.O. 1991, c 17 (Arbitration Act) Dell Computer Corp. v. Union des consommateurs, 2007 SCC 34 (“Dell”) to the effect that arbitrators may, and should, rule on their own jurisdiction. The Court also relied on Desputeaux v. Editions Chouette (1987) Inc., 2003 SCC 17 (“Desputeaux”) , which states in part:

“The arbitrator’s mandate must not be interpreted restrictively by limiting it to what is expressly set out in the arbitration agreement. The mandate also includes everything that is closely connected with that agreement …”

The Court held that the arbitrator should determine if the matters in Toronto Standard’s fresh as amended notice of arbitration were closely connected to the arbitration agreement, and that it was not appropriate to limit the arbitrator’s mandate at this stage. 

Finally, the Court held that the question of whether Gooderham should be added as a party should also be determined by the arbitrator, as this would turn on, “the substantive issues that would be heard by the arbitrator under his jurisdiction and mandate, and pursuant to the agreement between the parties” (para 18).

Contributor’s Notes:

This is a pithy judgment that effectively  applies – without naming it – the principle of competence-competence. In coming to its conclusion the Court generally referred to section 17 of the  Ontario Arbitration Act and Dell. The Court did not engage in any analysis of the test in Dell, or whether any exceptions to that test applied (namely that courts can determine jurisdiction where the question of jurisdiction is one of law or mixed fact and law requiring only a superficial review of the facts, Dell at para 85). It seems no such detailed analysis was necessary here. The Court apparently decided that determining whether any new issues raised in Toronto Standard’s fresh as amended notice of arbitration were within the arbitrator’s jurisdiction under the alternative dispute resolution process set out in the Shared Facilities Agreement would require a factual review of the alleged new issues, the arbitration agreement, the mandate, and the evidence of the parties. 

Further, as the Court was careful to point out (applying Desputeaux, para 35), the scope of the arbitrator’s mandate extends to issues that are closely connected with the agreement to arbitrate. Given that the parties had previously agreed to submit the issues set out in their respective 2018 notices of dispute to arbitration, the arbitrator’s jurisdiction must reasonably extend to any question closely connected with the matters raised in those 2018 notices. This appeared to be  all the more reason to find that the jurisdictional question could not be resolved on a superficial review of the facts, and therefore exclude any exceptions to the competence-competence principle raised in Dell.Finally, it is interesting  that  Distillery did not raise a limitations defense on the basis that no arbitration on the new issues had in fact “commenced” on time pursuant to s. 4 Ontario Limitations Act, SO 2002, c. 24, Sched. B, and s. 52 Arbitration Act. As the Court stated in Cruickshank Construction Ltd. v The Corporation of the City of Kingston, 2022 ONSC 5704, that issue would fall to the arbitrator to decide too. A limitations defence is not an issue of jurisdiction. A discussion of that case is found in Arbitration Matters note #674: “Ontario – Limitations defence not a matter of arbitral jurisdiction.