Ontario – each party argues to have the other party’s candidate appointed arbitrator instead of their own – #345

Still seized of the appointment process following his earlier decision to refer the parties to arbitration, Mr. Justice Jonathan Dawe in King Valley Estates Inc. v. Wong et al., 2020 ONSC 3950 accepted to grant Defendants’ application to appoint a candidate initially proposed, but now resisted, by Plaintiff.  Despite months of opportunity and diligent efforts by Defendants, the parties returned before Dawe J. each proposing that the other’s candidate be named. Both candidates were “eminently qualified”, acceptable to both parties and not under “any disqualifying conflict”.  Due to advantages perceived by Plaintiff’s candidate’s lower rate and cap on fees, Dawe J. expressed readiness to appoint that candidate at Defendants’ request subject to (i) re-confirmation of his interest and (ii) a schedule acceptable to Defendants.

King Valley Estates Inc. (“King Valley”) and Defendants (“Purchasers”) had appeared before Dawe J. in an earlier application. Dawe J. opened his reasons by pointing back to the September 4, 2019 date on which he released his decision in King Valley Estates Inc. v. Wong et al., 2019 ONSC 4809 referring the parties’ dispute to arbitration. “Applying the “competence-competence principle”, I held that the disagreement between the parties over whether this arbitration clause applied to their dispute “should initially be left to the arbitrator””.

When staying the litigation, Dawe J. advised that “[i]f the parties cannot agree on an arbitrator by September 30, 2019, I will remain seized of the matter for the purpose of appointing an arbitrator pursuant to s. 10(1) of the Arbitration Act”.

Despite the deadline and the opportunity to agree, the parties returned before Dawe J. to complete the appointment.  Dawe J. listed the efforts and exchanges between the parties by which Purchasers “tried repeatedly to have an arbitrator appointed by mutual agreement” but King Valley’s changes to its counsel “hampered” those attempts.

– October 2019 – Purchasers sent King Valley a list of four (4) arbitrators but King Valley retained new counsel (“Counsel 2”) and proposed a fifth candidate (“KV Candidate”);

– December 2019 – Purchasers and King Valley met with KV Candidate who confirmed his willingness/ability to act and provided draft terms of appointment;

– February 2020 – King Valley discharged Counsel 2 and retained new counsel (“Counsel 3”) who represented King Valley in the hearing before Dawe J.;

– King Valley’s Counsel 3 then proposed that the parties name one of Purchasers’ initial four candidates (“P Candidate”) instead of KV Candidate which King Valley had proposed;

– On May 6, 2020, Purchasers wrote King Valley to share concerns about cost and availability of P Candidate but advised that they would consent to his appointment if King Valley agreed to pay his fees and other expenses as provided in their arbitration agreement; and,

– King Valley did not reply and Purchaser served their motion to have KV Candidate appointed.

At para 11 of his reasons, Dawe J. observed the dynamic before him.  Purchasers had no concerns about P Candidate’s qualifications or competence, especially since he was one of the candidates they had themselves proposed.  Purchasers’ preference for KV Candidate, initially proposed by King Valley’s own Counsel 2, was based primarily on cost.  KV Candidate had given his agreement to charge “a lower hourly rate” than P Candidate and to cap his fees for the entire arbitration including “the anticipated preliminary motion by King Valley challenging his jurisdiction”. (Note: there is no indication in the reasons that the lower rate offered was set in response to any other candidate’s rate or that the cap was anything other than the candidate’s own suggestion in regard to the profile of the arbitration proposed).

The quality of either candidate provided no way to distinguish between them as Dawe J. observed that both were “eminently qualified” and neither was under “any disqualifying conflict”.  Unlike typical appointment conflicts, “each appears to be acceptable to both parties” because each party resisted the candidate it had “initially proposed” but which the other now preferred. 

Dawe J. distinguished the fee gap between the candidates before him from the costing remarks made in Kanda Franchising Inc. and Kanda Franchising Leaseholds Inc. v. 1795517 Ontario Inc., 2017 ONSC 7064.  In that case, at para. 30, the court strove to single out a ground to privilege one candidate over the other but, in that case, remarked that the “difference in their fees is not sufficiently significant to influence the choice of arbitrator”.

Dawe J. listed his considerations for preferring KV Candidate:

– KV Candidate’s agreement to charge a lower hourly fee and to cap the total cost of the arbitration provides “a measure of cost certainty to both parties”;

– King Valley’s failure to respond to Purchasers’ motion to appoint an arbitrator. “If King Valley has some cogent reason to prefer that [P Candidate] arbitrate this dispute, it ought to have presented its reason for my consideration”;

– the lapse of time since his September 2019 decision and the diligent efforts of Purchasers warrants no further delay. “[Purchasers] have indeed acted diligently to try to move the arbitration process along, and in my view they should not have to wait any longer. They evidently believe that fastest way forward at this point would be for me to appoint [KV Candidate]. In the absence of any countervailing reason to make a different order I am inclined to give effect to their wishes”.

Likely informed by the events since his September 2019 decision, Dawe J. refrained from ordering that KV Candidate be appointed.  Dawe J. noted that the last information available about KV Candidate’s interest and availability reached back to December 2019 and “his willingness to accept the appointment is somewhat stale”.  Therefore, Dawe J. made the exercise of his discretion under section 10 of the Arbitration Act, 1991, SO 1991, c 17 to appoint KV Candidate as arbitrator conditional on KV Candidate’s:

(i) willingness to accept the appointment; and,

(ii) ability to conduct the hearing on a timetable acceptable to Purchasers.

Dawe J. again remained seized of the matter pending confirmation of KV Candidate’s response to both accepting the appointment and Purchasers’ satisfaction with any schedule proposed by KV Candidate. 

urbitral note – First, Dawe J.’s willingness to remain seized of the matter in September 2019 was prescient and no doubt gave Purchasers’ follow up motion a more informed and shorter hearing.   His willingness to remain seized a second time is consistent with Canadian courts’ support for arbitration.  His reasons disclose an interest in ensuring the “fastest way forward” and to be “inclined to give effect to [Purchasers’] wishes”.

Second, the reasons make no mention of the manner in which the arbitrators priced their services or what information the parties provided when soliciting the candidates’ interest in acting in the arbitration.  The reasons disclose ways in which experienced arbitrators can contribute to cost efficiencies and the differing alternatives available.

Third, the reasons disclose competing ways to propose candidates (four at once or one by one). 

Fourth, the fact pattern is unusual in that the competence and impartiality of the candidates were not in issue and, unlike other appointment disagreements, each party actually sought to have the other party’s candidate named.  Dawe J. does point out that a party resisting an appointment ought to give a “cogent reason” as omitting to do so is of no assistance to the court.