Ontario – court to consider application of Indian Act seizure exemptions to contingency agreement related to arbitration award – #496

In Bogue v. Miracle, 2021 ONCA 278, Ontario’s Court of Appeal remitted back to the applications judge an order appointing a receiver because the record did not provide the Court with a record relevant to argument that the order contravened exemptions from seizure provided in the Indian Act, R.S.C. 1985, c. 1-5. The order issued pursuant to section 101 of Ontario’s Courts of Justice Act, RSO 1990, c C.43 and upon application by the attorney for the successful arbitration party ACM who had signed a contingency agreement with that attorney as part of his retainer to represent ACM in the arbitration. The attorney sought the appointment of a receiver to “realize upon the debt for his benefit and [ACM]’s other creditors”.

Andrew Clifford Miracle (“ACM”) and Andrew Maracle III (“AMII”) disputed their joint ownership of a store (“Store”) located on Tyendinaga Mohawk Territory in Ontario.  They agreed to arbitrate their dispute and ACM entered into a retainer agreement with an attorney GB to act for ACM in the arbitration.  The retainer included a contingency provision which provided that GB would receive twenty-five (25) percent of the amount awarded to ACM.

By November 24, 2016 award (“Award”), the arbitrator determined that AMII owed ACM $11,486,283.00.  Further to ACM’s application, the court made the Award into an order. As required by the Award, AMII transferred his interest in the Store to ACM who currently had possession of the Store. As of the date of the Court of Appeal’s reasons, ACM had paid $12,500.00 to GB.

Two (2) other individuals, LMS and VM, owned a gas station (“Gas Station”) in which AMII had been a one-third owner before transferring his one-third share in the Gas Station to LMS and VM.  Prompted by concerns that GB might seek an order of either garnishment or receivership against them, LMS and VM applied for and obtained status as respondents.

The Court of Appeal noted that GB did apply for the appointment of a receiver to “realize upon the debt for his benefit and [ACM]’s other creditors”.  By October 11, 2019 order (“Order”), Mr. Justice Stanley J. Kershman granted the relief sought by GB.  (Note: Kershman J.’s October 11, 2019 decision does not yet appear online as of the date of this note.)

Kershman J. appointed the receiver pursuant to section 101 of Ontario’s Courts of Justice Act, RSO 1990, c C.43.

Section 101(1) In the Superior Court of Justice, an interlocutory injunction or mandatory order may be granted or a receiver or receiver and manager may be appointed by an interlocutory order, where it appears to a judge of the court to be just or convenient to do so.

(2) An order under subsection (1) may include such terms as are considered just”.

ACM appealed that Order and alleged that it contained three (3) errors:

(i) the application judge had no authority to make a final order for a receiver;

(ii) no money owed to GB for fees on the contingency; and,

(iii) the Order contravened section 29 and 89 of the Indian Act, R.S.C. 1985, c. 1-5.

The provisions referenced in ground (iii) involve certain exemptions from seizure.

Section 29 Reserve lands are not subject to seizure under legal process”.

Section 89(1) Subject to this Act, the real and personal property of an Indian or a band situated on a reserve is not subject to charge, pledge, mortgage, attachment, levy, seizure, distress or execution in favour or at the instance of any person other than an Indian or a band.

(1.1) Notwithstanding subsection (1), a leasehold interest in designated lands is subject to charge, pledge, mortgage, attachment, levy, seizure, distress and execution.

(2) A person who sells to a band or a member of a band a chattel under an agreement whereby the right of property or right of possession thereto remains wholly or in part in the seller may exercise his rights under the agreement notwithstanding that the chattel is situated on a reserve”.

The Court of Appeal observed that, in support of ground (iii), ACM relied on Borden & Elliot v. Temagami First Nation, 2009 CanLII 18672 (ON SC), Mitchell v. Peguis Indian Band, 1990 CanLII 117 (SCC), [1990] 2 S.C.R. 85 and Tyendinaga Mohawk Council v. Brant, 2014 ONCA 565.

The Court of Appeal declined to address the merits of ACM’s appeal on (iii) because the record was incomplete and, referring to R. v. Roach, 2009 ONCA 156, remitted the matter to Kershman J. to determine the application of the Indian Act.  The Court noted that the issue of the Indian Act’s application did not appear to have been raised before Kershman J. It also noted that GB argued that ACM’s status as under the Indian Act had not been proven given that ACM had not raised that status and, even if the Indian Act applied, ACM had “waived his rights to protection under it”.

urbitral notes – First, regarding the principle in R. v. Roach, see the following paragraph referred to by the Court of Appeal.

[6] Generally speaking, appeal courts will not entertain arguments not made at trial: Kaiman v. Graham, 2009 ONCA 77 (CanLII), [2009] O.J. No. 324 at paras. 18-19 (C.A.).  That general rule applies to constitutional arguments raised for the first time on appeal regardless of whether the arguments invoke the remedial powers of s. 24 of the Charter or the nullifying power in s. 52(1) of the Constitution Act, 1982: e.g. see R. v. L.G. (2007), 2007 ONCA 654 (CanLII), 228 C.C.C. (3d) 194 at para. 43 (Ont. C.A.);  R. v. Seo (1986), 1986 CanLII 109 (ON CA), 25 C.C.C. (3d) 385 at 394 (Ont. C.A.)”.

Second, for a sampling of other decisions addressing enforcement of awards, see the earlier Arbitration Matters notes:

(i) “Québec – claimants lack juridical interest to execute on provisional measure ordering respondent to advance arbitration costs – #457” regarding Mehmedov v. Balabanian, 2021 QCCS 733. Madam Justice Guylène Beaugé quashed a seizure in execution made by arbitral parties purporting to enforce an arbitrator’s interim measures order requiring the other arbitral party to advance funds for his share of arbitration fees.  Beaugé J. held that the seizure as irregular and premature.  Though the Superior Court had homologated the arbitrator’s interim measures, the arbitral parties lacked a juridical interest as judgment creditor sufficient to justify a seizure executing on that court decision. Beaugé J. acknowledged the seizing parties’ economic interest in having the arbitrator’s fees advanced but determined that their interest did not qualify as a juridical interest.  The arbitral parties were not judgment creditors and, having omitted to advance those fees on behalf of the other defaulting arbitral party, were not subrogated for the arbitrator. 

(ii) “Ontario – Mareva injunction and increased costs ordered where arbitral award funds were core of dispute – #363” regarding Ndrive v. Zhou, 2020 ONSC 4568. In awarding costs on a substantial indemnity basis, Mr. Justice John R. McCarthy drew attention to a defendant’s conduct which “unnecessarily extended and complicatedMareva injunction proceedings in which arbitral award funds were the “core of the dispute between the parties”.  McCarthy J. underlined the importance of Mareva injunctions as a tool in civil litigation “to address the problem posed when a defendant utilizes the time lag between a claim being prosecuted and a plaintiff’s attainment and execution upon a judgment to divest itself of assets which would otherwise be available to satisfy that judgment in whole or in part”.  Also, see notes regarding an arbitrator’s jurisdiction under the Arbitration Act, 1991, SO 1991, c 17 to issue ex parte preservation orders against arbitral parties and an arbitrator’s lack of jurisdiction to issue Mareva injunctions against non-parties.

(iii) “Alberta – stay of BIA order lifted, enabling trustee to investigate transactions preventing execution of award – #324” regarding Pacer Holdings Construction Corporation v. Richard Pelletier Holdings Inc, 2020 ABCA 47. On application by a successful arbitral party, Mr. Justice Brian O’Ferrall lifted a stay imposed by the appeal filed by the losing arbitral party against the order putting it in bankruptcy.  The successful arbitral party challenged certain transactions by the losing arbitral party which “stripped” the latter of all its assets. O’Ferrall J.A. was “not yet convinced” to interpret the Bankruptcy and Insolvency Act, RSC 1985, c B-3 to mean that a “dormant shell” corporation was not a “debtor” or “insolvent person”.  Lifting the stay enabled the trustee to exercise powers ordinary creditors do not have, including collection of information relevant to ordering transferees of property of the bankrupt arbitral party to pay to the difference between the value of the consideration the bankrupt gave and the value transferees received.

(iv) “Supreme Court – guidance for preserving assets in anticipation of execution of award upheld – #246” regarding International Air Transport Association v. Instrubel, N.V., 2019 SCC 61. In the briefest of reasons, a 6:1 majority of the Supreme Court of Canada dismissed the appeal from the Québec Court of Appeal decision in Instrubel v. Republic of Iraq, 2019 QCCA 78. In doing so, it upheld a successful arbitral claimant’s attempt to garnish funds owed by a third party to respondent pending an application to recognize and enforce its award. For more on the issues, see the earlier Arbitration Matters note “Québec – successful arbitral party seizes assets in hands of third party pending homologation of award”. The reasons in dissent by Madam Justice Suzanne Côté issued May 1, 2020.

Third, for prior decisions by the Court of Appeal involve the underlying dispute and its arbitration see the earlier Arbitration Matters notes:

(i) “Ontario – courts consider final award which refuses to resolve dispute between some parties to arbitration – #043” regarding Maracle III v. Miracle, 2017 ONCA 950.  A short decision from the Court of Appeal, in Chambers, highlighted the shortened delay applicable in Ontario to appeals of Superior Court decisions confirming arbitral awards. The Court also dealt with the uncommon situation of an arbitrator’s refusal to make any findings regarding certain parties to a dispute despite their clear agreement to arbitrate that dispute. 

(ii) “Ontario – unpaid expert and arbitrator denied status as creditors of court order omitting their mention as beneficiaries – #182” regarding Miracle v. Maracle, 2019 ONCA 238. Ontario’s Court of Appeal upheld the unreported September 10, 2018 decision by Mr. Justice Patrick Hurley denying an unpaid expert and unpaid arbitrator leave to be added as parties to post-arbitration litigation.  In doing so, Hurley J. left open the possibility that the result could have been different had an earlier court order, recognizing and enforcing the arbitration award, mentioned personally the expert and arbitrator as beneficiaries of the orders for payment of arbitration costs incurred by the prevailing arbitral party. Hurley J.’s comments also serve to guide arbitration counsel in drafting dispositive sections for recognition and enforcement applications.