Ontario – Court of Appeal refuses to appoint arbitrator unless parties fail to do so under their procedure – #133

In upholding The Walt Disney Company v. American International Reinsurance Company, Ltd., 2018 ONSC 1108, the Ontario Court of Appeal in The Walt Disney Company v. American International Reinsurance Company, Ltd., 2018 ONCA 948 underscored that the courts’ jurisdiction under Ontario’s International Commercial Arbitration Act, 2017, SO 2017, c 2, Sch 5 to intervene in the appointment of arbitrators only arises if there is a failure of the parties’ appointment procedure. One party’s refusal to follow the procedure set out in the arbitration agreement does not give that party standing to apply to the court and allege that the parties are unable to proceed. Appointing an institution to administer an arbitration does not constitute that party’s appointment of its arbitrator in an ad hoc arbitration.

The Walt Disney Company (“Disney”) and Chartis Excess Limited (“Chartis”) were bound to an insurance policy which contained an arbitration agreement. Neither level of court reproduced the terms of the arbitration agreement in its reasons. The closest readers can get to the terms are two brief summaries, each given by Madam Justice Andra Pollak and by the Court of Appeal, respectively reproduced here:

[17] Pursuant to the Policy, the appointment procedure is that Disney and Chartis Express will appoint one arbitrator. There are no terms regarding the appointment of a particular institution (such as JAMS) to administer the arbitration.

[2] The arbitration clause in the insurance contract provided that the insured (the appellant) could select the venue and procedural laws of Bermuda or any one of London, Toronto or Vancouver under the English Arbitration Act of 1996 (“the Act”), which was incorporated by reference into the clause.

Disney had filed a “confidential” demand for arbitration on October 6, 2017. Neither Disney nor Chartis provided the “confidential” demand for arbitration to Pollak J. Disney had not included it in its application record though Disney did indicate in its factum that it was “available for viewing”.

Disney applied to the Superior Court for an order that the arbitration it had initiated be conducted by JAMS offices in Toronto. It argued that, due to Chartis’ actions, the parties had been unable to reach an agreement expected under the appointment procedure agreed upon by the parties. It submitted that the arbitration would not be held unless the Court exercises its supervisory jurisdiction under Articles 6 and 11(4)(b) of the Model Law and decides on the applicable procedural rules for their arbitration.

Article 6 – The functions referred to in articles 11(3), 11(4), 13(3), 14, 16(3) and 34(2) shall be performed by the Superior Court of Justice.

Article 11(4) – Where, under an appointment procedure agreed upon by the parties,
(a) a party fails to act as required under such procedure, or
(b) the parties, or two arbitrators, are unable to reach an agreement expected of them under such procedure, or
(c) a third party, including an institution, fails to perform any function entrusted to it under such procedure, any party may request the court or other authority specified in article 6 to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.

Chartis resisted. It argued that the Court should dismiss Disney’s application because the Court had no jurisdiction given that there had been no failure of the appointment procedure. Chartis did not object to holding a properly constituted ad hoc arbitration proceeding in Toronto but Disney had failed to appoint an arbitrator or deliver a request to Charites to appoint an arbitrator. In so doing (or not doing), Disney had not initiated arbitration.

Chartis submitted that both parties agreed that section 14(4) of the U.K. Arbitration Act, contained in section 14 entitled “Commencement of arbitral proceedings” applied:

14(1) The parties are free to agree when arbitral proceedings are to be regarded as commenced for the purposes of this Part and for the purposes of the Limitation Acts.
(2) If there is no such agreement the following provisions apply.
(3) Where the arbitrator is named or designated in the arbitration agreement, arbitral proceedings are commenced in respect of a matter when one party serves on the other party or parties a notice in writing requiring him or them to submit that matter to the person so named or designated.
(4) Where the arbitrator or arbitrators are to be appointed by the parties, arbitral proceedings are commenced in respect of a matter when one party serves on the other party or parties notice in writing requiring him or them to appoint an arbitrator or to agree to the appointment of an arbitrator in respect of that matter.
(5) Where the arbitrator or arbitrators are to be appointed by a person other than a party to the proceedings, arbitral proceedings are commenced in respect of a matter when one party gives notice in writing to that person requesting him to make the appointment in respect of that matter.

Chartis argued that the parties had agreed that the procedure of the U.K. Arbitration Act would apply and that, as a consequence, Article 11 of the Model Law governed. Article 11 provided that Disney and Chartis could agree on the procedure and, Chartis submitted, in compliance with that procedure, the two had in fact agreed in the insurance policy that each would appoint one arbitrator. Chartis stated that nowhere had the parties agreed to appoint a particular institution to administer the arbitration. In addition, Disney had not met the requirements of section 14(4) of the U.K. Arbitration Act, had not delivered the notice required or appointed an arbitrator and therefore had not commenced an ad hoc arbitration.

Chartis concluded that “Disney has therefore not commenced the arbitration. Disney’s attempt to appoint JAMS as the administrator of the arbitration under JAMS Rules does not quality as an appointment of an arbitrator.

Pollak J. set out each party’s respective positions and summed up their procedural disagreement as follows:

[23] Disney submits that this court’s intervention is required to break the impasse between the parties and permit the arbitral proceedings to commence. Chartis argues that there is no impasse. Rather, Disney has not complied with the procedure agreed to by the parties.

Pollak J. agreed with Chartis.

[22] The Policy provides for ad hoc arbitration pursuant to the English Arbitration Act. Chartis argues that in contrast to “ad hoc” arbitration, a “JAMS” arbitration is one that is administered by a specialist arbitration institution, under its own rules of arbitration. Disney has requested JAMS to administer the arbitration in accordance with the JAMS Rules, which Chartis argues conflicts with the English Arbitration Act.

[23] Disney submits that this court’s intervention is required to break the impasse between the parties and permit the arbitral proceedings to commence. Chartis argues that there is no impasse. Rather, Disney has not complied with the procedure agreed to by the parties.

[24] I agree that this Court’s jurisdiction to intervene in the appointment of arbitrators only arises if there is a failure of the parties to agree on the appointment procedure. The parties have agreed on the appointment procedure as set out in the policy. I find that Disney has not followed this procedure. There is no proper request in writing for arbitration to Chartis and Disney has not appointed its arbitrator. I decline to appoint JAMS or otherwise interfere in the appointment procedure set out in the Act which was agreed to by the parties. For these reasons, I deny the new relief requested by Disney in this Application.

The reasons on appeal were brief. The Court of Appeal agreed with the result arrived at in first instance “notwithstanding that it may have been based on a misapprehension of the positions of the parties.” The brief reasons condense the submissions made by Disney and capture the Court of Appeal’s response but do not give sufficient insight into the discussion raised in appeal and are best cited in full:

[3] The appellant submits that the correct interpretation of the contract is that the parties incorporated the Act by reference, but that by virtue of s. 2 of the Act, the procedural provisions of Part I were excluded, save for certain provisions specifically identified in s. 2. In effect, it submits that the entire Act was incorporated by reference, but that by its express terms, the procedural provisions are inapplicable to arbitrations outside the UK. It submits that the application judge erred in finding that s. 14(4) of the Act applied to the commencement of the arbitration and that instead, the UNCITRAL Rules set out in Ontario’s International Commercial Arbitration Act would apply.

For ease of reference and to follow the reply offered by the Court of Appeal to Disney’s submissions regarding section 2 of the U.K. Arbitration Act, entitled “Scope of application of provisions”, the full terms of which read as follows:

2(1) The provisions of this Part apply where the seat of the arbitration is in England and Wales or Northern Ireland.
(2) The following sections apply even if the seat of the arbitration is outside England and Wales or Northern Ireland or no seat has been designated or determined—
(a) sections 9 to 11 (stay of legal proceedings, &c.), and
(b) section 66 (enforcement of arbitral awards).
(3) The powers conferred by the following sections apply even if the seat of the arbitration is outside England and Wales or Northern Ireland or no seat has been designated or determined—
(a) section 43 (securing the attendance of witnesses), and
(b) section 44 (court powers exercisable in support of arbitral proceedings);
but the court may refuse to exercise any such power if, in the opinion of the court, the fact that the seat of the arbitration is outside England and Wales or Northern Ireland, or that when designated or determined the seat is likely to be outside England and Wales or Northern Ireland, makes it inappropriate to do so.
(4) The court may exercise a power conferred by any provision of this Part not mentioned in subsection (2) or (3) for the purpose of supporting the arbitral process where—
(a) no seat of the arbitration has been designated or determined, and
(b) by reason of a connection with England and Wales or Northern Ireland the court is satisfied that it is appropriate to do so.
(5) Section 7 (separability of arbitration agreement) and section 8 (death of a party) apply where the law applicable to the arbitration agreement is the law of England and Wales or Northern Ireland even if the seat of the arbitration is outside England and Wales or Northern Ireland or has not been designated or determined.

The Court of Appeal offered its interpretation of that section which it stated makes “commercial sense”:

[4] We disagree. In our view, the plain wording of the contract required that where Toronto was the seat chosen for arbitration, the arbitration was to be conducted in accordance with the procedural laws set out in the Act. The interpretation advanced by the appellant does not make commercial sense because it would mean that different procedural laws would apply depending on whether the arbitration took place in Toronto or Vancouver. Moreover, it makes no sense that the parties would agree to have an Ontario court apply specific provisions of the Act relating to the matters set out in s. 2(2), (3) of the Act.

The Court of Appeal declined to determine whether the arbitration had been properly commenced. It questioned whether it had jurisdiction to do so and, even if it did, the question was reserved to the arbitrators.