In Camerman v. Busch Painting Limited et al., 2020 ONSC 5260, Mr. Justice Paul B. Schabas both varied and set aside a portion of an award due to the arbitrator’s contractual interpretation of the scope of issues subject to arbitration under a settlement. Schabas J. determined that the parties, by their settlement, had “reset the dial” between them and the award breached the scope of disputes subject to arbitration. The arbitrator’s award relied on his interpretation of the settlement and exceeded the terms of the settlement. That interpretation raised an extricable question of law identified by Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, qualifying that issue for leave to appeal under section 45(1) of Ontario’s Arbitration Act, 1991, SO 1991, c 17. Schabas J. also held that the same facts demonstrated a jurisdictional error covered by section 46(1)3 and an order setting aside the same portion of the award.
The parties, co-owners in a real estate property, negotiated February 18, 2000 minutes of settlement (“Minutes of Settlement”) to resolve their court litigation regarding the priority of mortgages registered against the property. Schabas J. observed that the Minutes of Settlement were “handwritten and straightforward”, reproducing the key terms at para. 8 of his reasons.
Following the settlement, the parties continued to own the property until its sale in 2014.
Following the sale, both parties served requests to arbitrate. They agreed on an arbitrator and, further to an October 31, 2018 court order (“Order”), proceeded to arbitration. The Minutes of Settlement stipulated that the parties agreed to arbitration for “[a]ny dispute between the parties”. Schabas J. wrote that the Order (not posted online) stipulated the following scope of the arbitration:
“the issues to be arbitrated shall be those whether the aforesaid Minutes of Settlement have been fulfilled and assuring their fulfillment and also the issues set out in the Notices of Request to Arbitrate as delivered by the parties as well as all previous issues that have arisen between the parties concerning their ownership and management of [the property]”.
The arbitrator released his award on September 4, 2019 (“Award”). Applicant sought leave to appeal under section 45 of the Arbitration Act, 1991, SO 1991, c 17 but, in written submissions, also raised section 46(1)3.
“45 (1) If the arbitration agreement does not deal with appeals on questions of law, a party may appeal an award to the court on a question of law with leave, which the court shall grant only if it is satisfied that,
(a) the importance to the parties of the matters at stake in the arbitration justifies an appeal; and
(b) determination of the question of law at issue will significantly affect the rights of the parties”.
If the court does grant leave and does determine that the arbitrator committed an error of law, the court under section 45(5) can confirm, vary or set aside the award or may remit the award to the arbitrator with the court’s opinion on the question of law, in the case of an appeal on a question of law, and give directions about the conduct of the arbitration.
Section 46(1) addresses jurisdictional challenges:
“46 (1) On a party’s application, the court may set aside an award on any of the following grounds: …
3. The award deals with a dispute that the arbitration agreement does not cover or contains a decision on a matter that is beyond the scope of the agreement”.
Referring to the issues addressed in the Award, Schabas J. observed that it considered construction costs, management and contributions by the parties. One issue which prompted the application for leave to appeal involved the arbitrator’s finding of a contribution made prior to the Minutes of Settlement which he addressed under section 11 of the Minutes of Settlement. Applicant argued that the Minutes of Settlement “merged” all their rights and meant that the parties “were starting afresh as of that date”. As such, the Minutes of Settlement created no right for a party to claim construction costs prior to the Minutes of Settlement. In doing so, the arbitrator breached section 46(1)3 of the Arbitration Act by issuing a decision beyond the scope of the agreement to arbitrate.
Respondent argued that the application did not meet the test in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 (CanLII),  2 SCR 633 in which the Supreme Court restated the approach to contract interpretation. In that case, the Supreme Court held that contract interpretation involved issues of mixed fact and law, explaining at para. 50 that it was “an exercise in which the principles of contractual interpretation are applied to the words of the written contract, considered in light of the factual matrix”.
Schabas J. acknowledged the approach stated by the Supreme Court but held that the record did raise an extricable question of law.
“ While Sattva marks a shift in the law in Canada, the Supreme Court noted, at para. 53, that there are circumstances where “it may be possible to identify an extricable question of law”, citing “legal errors made in the course of contractual interpretation” as an example. These may include “the application of an incorrect principle, the failure to consider a required element of a legal test, or the failure to consider a relevant factor.” Where contractual interpretation is based entirely on the words of the contract, and not dependant on factual findings, an extricable question of law arises”.
Schabas J. held that, as recognized by the arbitrator, the Minutes of Settlement were to “reset the dial between the parties” and that claims pre-dating the Minutes of Settlement would be barred by limitations and the doctrine of laches, such that he had no jurisdiction to resolve disputes over prior mortgage issues.
The arbitrator’s reasoning on giving one party credit for a pre-Minutes of Settlement expense was contrary to the Minutes of Settlement.
“[The arbitrator’s reasoning] does not address the fact that crediting Busch for additional costs prior to the Minutes of Settlement negated the reset of the parties’ rights as of that date. This is contrary to a basic principle of contractual interpretation, that one must avoid an interpretation of one part of a contract that would render other terms ineffective: see Salah v. Timothy’s Coffees of the World Inc., 2010 ONCA 673 at para. 16, cited in Ottawa (City) v. The Coliseum Inc., 2014 ONSC 3838, at para. 37. This is pure contractual interpretation and does not require factual findings regarding the “surrounding circumstances” which, in any event, “must never be allowed to overwhelm the words of [the] agreement”: Sattva at para. 57. It is an error of law”.
Schabas J. then considered whether the issue in appeal satisfied the other requirements under the Arbitration Act, notably whether the issue was of sufficient importance to justify an appeal and would significantly affect the parties’ rights. Despite the amount being nominal to the overall amounts accorded to each party in the arbitration, the credit given to one of the parties was the largest adjustment between the parties and Schabas J. concluded that the issue met the two-part test in section 45(1)(a) and (b) of the Arbitration Act.
For good measure, Schabas J. further determined that the appeal met the test in section 46(1)3, which permitted him to set aside an award if it deals with a dispute not covered in the agreement to arbitrate or decides a matter beyond the scope of the agreement. Schabas J. noted that applicant only raised this argument in his factum.
Under section 45(5), Schabas J. allowed the appeal and varied the Award to reduce the amount paid to Respondent by the amount disputed in the specific issue.
Thought not necessary in light of that determination, Schabas J. also gave effect to applicant’s challenge under section 46(1)3 and set aside that portion of the Award which credited Respondent with the corresponding offset amount resulting in the over-award subject to the section 45(5) variance.
Because Respondent remained “successful overall” in the arbitration, Schabas J. left the arbitrator’s costs award undisturbed.
urbitral note – First, Schabas J.’s decision dealt with an arbitration award resolving disputes arising after the parties negotiated a settlement to put an end to their litigation.
Second, the Minutes of Settlement purported to terminate disputes between the parties and, in doing so, included an agreement to arbitrate. That agreement to arbitrate, contained in the Minutes of Settlement, restricted disputes to those arising under the Settlement and not all and any disputes which could be lingering. The decision illustrates the binding effect of settlements and their impact on the disputes eligible for resolution (by court or by arbitration).
Third, Schabas J. held that the extricable question of law, stemming from an arbitrator’s interpretation of the contract granting him the jurisdiction to resolve the disputes, could also double as a jurisdictional question. Each way of viewing the same interpretation triggered different sections of the Arbitration Act and different remedies, either vary or set aside.