Ontario – Courts decide consent to arbitration de novo, without deference to arbitral tribunal – #532

In Hornepayne First Nation v. Ontario First Nations (2008) Limited Partnership, 2021 ONSC 5534, Justice Fitzpatrick held that a court hearing an application to “decide the matter” of arbitral jurisdiction must decide the question de novo. This was an application to the court under section 17(8) of the Ontario Arbitration Act, 1991. That section provides that, if an arbitral tribunal finds as a preliminary question that is has jurisdiction, any party may apply to the court to “decide the matter”. Justice Fitzpatrick followed the Divisional Court’s decision in Russian Federation v. Luxtona, 2021 ONSC 4605, which interpreted a similar provision in Article 16(3) of the Model Law. He held that the court’s role on such an application is to decide de novo whether the arbitral tribunal had jurisdiction.

The dispute arose in connection with the contractual entitlement that Ontario First Nations have – through Ontario First Nations (2008) Limited Partnership (“ONFLP”) – to receive gaming revenues from the Ontario Lottery and Gaming Corporation. Hornepayne First Nation is a limited partner in ONFLP, and a dispute arose over certain reporting obligations that led ONFLP to cease payments to Hornepayne and bring an arbitration claim.

Hornepayne made a preliminary jurisdictional objection on the basis that the person who had signed the relevant agreement on behalf of Hornepayne had no authority to do so, such that the arbitration agreement did not bind Hornepayne. The arbitrator issued an award on a preliminary basis that he had jurisdiction.

Following the arbitrator’s jurisdictional award, Hornepayne brought an application under section 17(8) of the Arbitration Act, 1991 for the court to “decide the matter”. That section provides: “If the arbitral tribunal rules on an objection [to jurisdiction] as a preliminary question, a party may, within thirty days after receiving notice of the ruling, make an application to the court to decide the matter.” The “decide the matter” language of section 17(8) tracks the language of Article 16(3) of the Model Law.

Justice Fitzpatrick first considered the court’s role on an application of this nature. Relying on the Divisional Court’s decision in Russian Federation v. Luxtona, 2021 ONSC 4605, which interpreted Article 16(3) of the Model Law, he held that “an application concerning a preliminary question of an arbitrator’s jurisdiction is to be treated as a hearing de novo on application to the Superior Court.”

The parties filed extensive affidavit evidence on the issue of the authority of the person who signed the agreement on behalf of Hornepayne. Justice Fitzpatrick initially analyzed the issue without referring to the arbitrator’s award, but ultimately reached the same conclusion: that Hornepayne was bound by the arbitration agreement. He then confirmed that the arbitrator’s reasons were consistent with his own.

Justice Fitzpatrick also dismissed the allegation that the arbitrator’s conduct at the jurisdictional hearing raised a reasonable apprehension of bias. He stated that “[s]uch arguments are very serious and require detailed particulars of the conduct of an adjudicator.” No such particulars had been provided.

Update: An appeal of this decision was quashed. Leave to appeal was required within 15 days and was not brought in time. See 2022 ONCA 299.

Contributor’s Notes:

First, this case confirms that the Divisional Court’s analysis in Russian Federation v. Luxtona under Article 16(3) of the Model Law applies equally to applications under section 17(8) of the Arbitration Act, 1991. Taken together, both cases resolve any doubt there may have been previously that the decisions of arbitral tribunals as to their own jurisdiction are not owed any deference, at least in respect of applications brought under those two provisions. See previous Case Notes on the Russian Federation v. Luxtona case: Ontario – Court application under Model Law Art. 16(3) to “decide the matter” of the tribunal’s jurisdiction is a hearing de novo and not a “review” of the tribunal’s decision – #513, Ontario – court revisits/reverses prior decision which allowed new evidence on post-award jurisdictional challenge – #272 and Ontario – arbitral tribunal’s evidentiary record on jurisdiction challenge is not ignored but also does not confine court – #060. Luxtona has appealed the Divisional Court’s decision to the Ontario Court of Appeal.

Second, this jurisprudence aligns the approach in Ontario to that of many other prominent arbitral centres and Model Law jurisdictions. It is indeed the natural extension of the competence-competence principle. Where there is a dispute as to whether a party is bound by an arbitration clause, the arbitral tribunal must decide the issue in the first instance, but subject always to the court providing the last word. As Lord Mance stated in Dallah Real Estate and Tourism Holding Co. v. Ministry of Religious Affairs, Government of Pakistan, [2010] UKSC 46 with respect to the court’s role in determining whether the parties consented to arbitrate:

The nature of the present exercise is, in my opinion, also unaffected where an arbitral tribunal has either assumed or, after full deliberation, concluded that it had jurisdiction. There is in law no distinction between these situations. The tribunal’s own view of its jurisdiction has no legal or evidential value, when the issue is whether the tribunal had any legitimate authority in relation to the Government at all. This is so however full was the evidence before it and however carefully deliberated was its conclusion. It is also so whatever the composition of the tribunal – a comment made in view of Dallah’s repeated (but no more attractive for that) submission that weight should be given to the tribunal’s “eminence”, “high standing and great experience”. The scheme of the New York Convention, reflected in ss.101-103 of the 1996 Act may give limited prima facie credit to apparently valid arbitration awards based on apparently valid and applicable arbitration agreements, by throwing on the person resisting enforcement the onus of proving one of the matters set out in Article V(1) and s.103. But that is as far as it goes in law. Dallah starts with advantage of service, it does not also start fifteen or thirty love up.”

Third, Justice Fitzpatrick also appears to have followed the Divisional Court’s approach from Russian Federation v. Luxtonathat the record before the court need not be limited to the record before the tribunal. While he does not address the issue explicitly, it is clear from the reasons that he had extensive affidavit evidence before him and that cross-examinations took place on those affidavits. Therefore, necessarily, the record before the court was not identical to that before the arbitrator.