Ontario – court respectful of parties’ choice while ensuring parties treated fairly and equally – #035

The application in Gerstel and 2102503 Ontario Inc. (Harold the Jewellery Buyer) v. Kelman and Mortgage Maven Inc., 2017 ONSC 214  required Mr. Justice Thomas R. Lederer to balance the limits of court intervention with party autonomy when he reviewed reproaches to the procedure adopted and tailored by the parties.  As with many arbitration agreements, the parties chose their applicable law and decision makers, opting to submit to a panel of three respected community leaders sharing similar values and approaches in order to resolve a commercial dispute.  Lederer J. carefully navigated between keeping the court’s distance and ensuring that both parties were treated equally and fairly, with a chance to present their case on the merits and challenge the other party’s. 

Plaintiffs, (collectively referred to as “Gerstel”) and Defendants (collectively referred to as “Kelman”) signed a December 10, 2010 agreement by which Kelman would refer potential clients to Gerstel in exchange for a percentage of the commission on mortgages obtained for those clients.  Disagreements arose and on February 21, 2014 Gerstel instituted court litigation against Kelman alleging: 

(1) failure to pay agreed upon share of mortgage commissions;   

(2) under-reporting amount of mortgage commissions generated; and, 

(3) failure to provide accounting of mortgage commissions generated. 

After the litigation commenced, Gerstel and Kelman signed a March 19, 2014 submission agreement by which they agreed to go to arbitration before the Beis Din, a rabbinical court, comprised of three Rabbis or Daiyonim judges. 

Prior to appearing before Lederer J., the parties had already been to court to debate a stay application, which had been granted by Mr. Justice Mario D. Faieta in Gerstel et al. v. Kelman et al., 2015 ONSC 978.  Lederer J. refers to that earlier decision at paragraphs 6-12 as context for the application by Gerstel before him.  

The application by Gerstel raised claims that the procedure adopted by the Rabbinical tribunal was unfair to him and biased against Gerstel’s interests.  The application sought to remedy certain steps complained of by Gerstel.  Lederer J. examined the application in light of the applicable provisions of Ontario’s Arbitration Act, 1991, SO 1991, c 17.

Lederer J. was alert to the values asserted by the parties by their choice of decision makers. 

[13] By the agreement that was signed the dispute was removed from the Court and made subject to “binding arbitration” by the Beis Din (Rabinical Court) composed of three Daiyonim (Judges). It would not be possible nor should any attempt be made to separate this arbitration panel (the three named arbitrators) from its (or their) religious or community foundation. To the contrary, the arbitration agreement is replete with the recognition of those roots and the preference for the primacy, values and approach of the arbitration panel, made up, as it is, of three Rabbis.”   

Lederer J. then listed six ways in which the parties in and by their submission agreement had tailored their dispute resolution to their values and Torah Law.  His list closed with an acknowledgement by the parties, drawn from their agreement, that nothing intended to cancel the provisions of the Arbitration Act which secular law prohibits parties from contracting out of including sections 5(4), 19, 39, 46, 48 and 50. 

Lederer J. was alert to the choice made by the parties to submit their dispute to a specialized tribunal and to refrain, where possible, not to impose the court’s formalities onto that process even at the request of one of the parties dissatisfied with the process. 

 [42] I pause to again inject into these reasons the thought that the courts need to be careful and aware when dealing with community based mechanisms of dispute resolution. The role lawyers play may vary. It is not inherently biased for a decision maker to communicate with a party. It is contrary to the rules the court employs but to insist on it, in situations involving other dispute resolution models, may result in too much formality and detract from their ability to succeed. It is possible to attach too much “legality” to these processes. 

Lederer J. reviewed in detail each of the reproaches made by Gerstel and declined each time to intervene.  The reasons for decision identify various facts which Lederer J. addresses in detail.  In doing so, he noted that certain of the facts demonstrated that the Rabbinical tribunal’s efforts were procedural, limited to retaining experts such as a bookkeeper and an accountant and to ensuring that necessary information would be communicated in advance of and in preparation for the hearing.  Lederer J. agreed that Gerstel’s objections could be well-founded “if the arbitration model was based on a court-like proceeding.”   

He drew a line between what was prepared in advance of a hearing on the merits and what the court would expect for the merits.    The arbitration process had “now reached the critical phases where exchange of information will have to be completed … and both Gerstel and Kelman provided with the opportunity to review and respond to whatever has come forward including what any expert report or reports may say and conclude.”  

He noted that the parties’ submission agreement expressly applied section 19(1) of the Arbitration Act which requires that the parties be treated equally and fairly, each being given an opportunity to present its case and respond to the other’s. 

[70] The parties have executed an arbitration agreement. They have put their faith in the Beis Din, a Rabbinical Court, to carry out the terms of the agreement. This court should be careful before importing its procedure into such a process as if it is the only way to resolve the dispute. To this point the Beis Din has been gathering information. There is nothing that has happened that offends the principles of equality and fairness. Evidently there is to be a hearing. The report of the forensic accountant has been submitted. The process should be near completion. The Beis Din should be left to finish what it has begun. 

Throughout his analysis, Lederer J. was careful to refrain from imposing court procedure, formalities and expectations on the parties’ own choices.  After outlining Gerstel’s reproaches, Lederer J. considered the role of the Arbitration Act and certain sections and concluded that “(t)hough it follows that the court has jurisdiction, it needs to be careful in its exercise of that jurisdiction.” 

[24] The courts need to be careful to allow for the confidence and goodwill members of our society demonstrate when they chose to honour the wisdom of their community leaders by relying on them to resolve disputes, internal to that community outside of and away from the courts. This is not to detract from the fact that, in this case, given the terms of the arbitration agreement signed by the parties, the courts continue to have a role to ensure that the fundamental principles of equality and fairness are not breached. 

Lederer J. paused his reasons to ask: “What role can the court play in a proceedings such as this one?”  The question is universal and can be asked of many other different iterations of dispute resolution crafted by parties.  As part of the answer to his own question, Lederer J. was clear that parties’ choice of decision makers, in the present case and elsewhere, did not put their process entirely beyond the supervision of the courts and the application of the Arbitration Act.  

[72] I have considered providing some direction as to how this matter should proceed. I have decided not to do so. The arbitration agreement is a private contract. This is a circumstance where the selected arbitrator honours community leadership and reflects community values and faith. The arbitration agreement asks for a decision on the basis of psara krava l’din meaning “judgement based on compromise close to the letter of the law” or l’fee ha-tzedek ve’hyasher explained as “justice and righteousness.” These terms should not be narrowly construed. The agreement calls for evidence that is “relevant and revealing” and for a ruling that is based on an interpretation of Halacha described as Torah Law. There is nothing intrinsically wrong with this. It is not inherently contrary to any relevant legal principle found in our law. It would be inappropriate for the court to impose its view of the process by which these values are to be achieved. It is for those who understand these values and the manner in which their community respects them to set the process. This falls within the responsibility of the Beis Din. 

[73] Nonetheless, I make the following cautionary observation. There is nothing in what I have said that allows the Beis Din to do whatever it wants. In particular, in this case the arbitration agreement imposes real limitations on the Beis Din. The agreement that there cannot be and has not been any contracting out of the requirement that it abide by section 19(1) of the Arbitration Act, 1991 (the parties be treated equally and fairly) is one. Presumably there is some flexibility in what this may mean in any particular case. Having said this I point out that if the process adopted by the Beis Din ignores or fails to respect these limitations it does so at the risk that this matter will be returned to the Court. 

Based on his review of the applicable principles and the particular facts of the case, Lederer J. dismissed Gerstel’s motions. He did close with comments on costs, taking that opportunity to again draw the line between the parties’ choice of procedure and that adopted by a court.  

[74] No submissions were made as to costs. It is not clear to me that costs should be awarded. The parties have removed this dispute such that the primary decision being sought will not be made by the Court or through a strict adherence to its process and principles. This motion, at its foundation, was concerned with the juxtaposition of the courts and an arbitrator selected as a result of its ties to and the position its members hold within the community of which the parties are part. This motion was part of a collective search for the relationship of the process selected to the applicable legal principles. In such circumstances, it may be best if the parties each absorb their own costs of this motion. If the parties wish to proceed to have costs considered I may be spoken to.