In J.P. Thomson Architects Ltd. v. Greater Essex County District School Board, 2025 ONCA 378 (the “Decision”), the Court provides important guidance on the interpretation of multi-tier dispute resolution clauses.
History of the Dispute – J.P. Thomson Architects Ltd. (“Thomson”) is an architecture firm which provided services to the Greater Essex County District School Board (the “Board”) for nearly 50 years. The contracts in question contained a standard form Ontario Association of Architects multi-tier dispute resolution clause (as it existed at the time of contract).
The dispute resolution clause provided a stepped dispute resolution mechanism which set out various stages, each with a 30-day timeframe, first for the parties to attempt to resolve any dispute, and then to mediate, and then to arbitrate. GC 18 stated:
“Any dispute between the parties arising out of or relevant to this Agreement which cannot be resolved by the parties within thirty (30) days of the dispute arising, shall be referred to mediation, upon the request of either party. […]
In the event that any dispute between the parties has not been resolved by such mediation within thirty (30) days following selection of the mediator, such dispute shall be settled and determined by binding arbitration requested by either party, pursuant to the Arbitration Act of Ontario […]”
Two disputes arose between the parties. First, the Board raised an issue with respect to concerns regarding Thomson’s performance and notified Thomson that it would be ineligible for bidding on future work for two years. Second, Thomson raised an issue regarding the calculation of its fees under the contract.
Thomson sought to invoke the dispute resolution procedure under the contract. It wrote to the Board to seek mediation under GC 18. The Board refused to appoint a mediator. Instead, the Board took the position that there was no dispute under GC 18 to submit to mediation because more than 30 days had passed since the disputes had arisen. Thomson then sent a Notice of Arbitration, but the Board took the same position and refused to participate in the appointment an arbitrator.
Application to Superior Court of Justice – Thomson applied to the Ontario Superior Court of Justice for an order to appoint an arbitrator pursuant to the dispute resolution clause and s. 10(1) of the Arbitration Act, 1991, S.O. 1991, c. 17.
The applications judge dismissed the application, finding it was made out of time, and refused to appoint an arbitrator. The court interpreted the multi-tier dispute resolution clause as imposing a strict deadline of 30 days after a dispute arises for a party to seek a mediation. According to the applications judge, this interpretation of the dispute resolution clause supported the overall purpose of the clause, which was understood to be to “provide an alternative mechanism to deal with disputes between the parties promptly when they arise.” (Decision at para 9)
Ontario Court of Appeal – The Ontario Court of Appeal unanimously allowed the appeal.
Issue #1 – Interpretation of the Dispute Resolution Clause
The first issue was the correct interpretation of the dispute resolution clause. The Court of Appeal applied a standard of review of correctness.
The Court explained that the ordinary principles of contractual interpretation applied to the clause and that the clause should be interpreted in a way that is commercially sensible and consistent with good business sense.
It explained that the correct interpretation of the dispute resolution clause is that it sets a minimum 30-day period before the parties can seek mediation. This is consistent with the wording used in the contract, the overall structure of the dispute resolution mechanism, and the commercial purpose of the clause.
It would not be commercially sensible to mandate a party to initiate mediation within 30 days of a dispute arising – nor did the clause specify this. To impose this strict requirement was not supported by the wording of the clause, nor the purpose of it.
The Court explained that the clause functions so that “[a]t each stage, the clause requires the parties to attempt to settle their differences before escalating their dispute to the next level. The minimum 30-day period to attempt to mediate a dispute before seeking arbitration parallels the minimum 30-day period for the parties to attempt to resolve any dispute amicably before seeking mediation.” (Decision at para 22)
The Court added that this makes good sense commercially in the context of long-standing and complex relationships between parties. In contrast, the other interpretation of GC 18, in which a party would lose its right to engage in dispute resolution if it did not make a request for mediation within 30 days of a dispute arising, is inconsistent with the wording of the clause, the overall dispute resolution mechanism, and good commercial sense.
Issue #2 – Up to Arbitrator to Finally Determine Issue
The second issue which the Court of Appeal addressed was the question of who makes the determination of whether a dispute falls within the scope of an arbitration agreement. In doing so, the Court endorsed the principle set out in earlier cases that, “where it is arguable that a dispute falls within the terms of an arbitration agreement, any final determination as to the scope of the dispute to be arbitrated is better left to the arbitration tribunal.” (Decision at para 27) This is the principle of competence-competence.
Consequently, the Court concluded that, “[i]t is up to the arbitrator to determine the scope of the dispute being arbitrated and of their jurisdiction.” (Decision at para 29)
The Court allowed the appeal and ordered mediation to proceed within 60 days. The Court further stated that Thomson had the right to seek arbitration if the parties did not resolve the dispute.
Contributor’s Notes:
This is an important decision in which the Court of Appeal emphasized the need for a purposive interpretation and good commercial sense when interpreting multi-tier dispute resolution clauses. A number of takeaways arise out of this case:
- This case illustrates what can happen if a multi-tier dispute resolution clause is incorrectly interpreted/applied. Attention to drafting is critical!
- Multi-tier dispute resolution clauses do have benefits, but these clauses must be treated with care. As a benefit, multi-tier dispute resolution clauses can provide the opportunity for parties to address, and potentially resolve, a dispute in a practical way prior to it being elevated into formal arbitration or litigation proceedings. However, a drawback to multi-tier dispute resolution clauses is that they can add layers of extra complexity, and potential complications including issues concerning the enforceability of the clause itself, disputes about whether a pre-requisite step has been satisfied, the threat of extinguishment of claims, limitation period issues, and even issues about whether an arbitrator has jurisdiction.
- In order for these clauses to be effective tools for dispute resolution, a practical approach, like that emphasized by the Court of Appeal in this case, must be adopted. Otherwise, if rigid, technical interpretations or positions are taken, it risks undermining the purpose of the clause itself, which is to promote ADR as an efficient alternative.
- As illustrated in this case (which dealt with a relatively straight forward legal issue that could have easily been resolved on the plain wording of the clause) the complexities which can arise can create significant risks to the parties including cost, delay, and uncertainty.
- Clear drafting of the clause itself, and a careful and practical interpretation, by both the parties and the courts, are critical to ensuring that these clauses achieve the objective of being a tool to facilitate efficient dispute resolution, and are not used to create unexpected pitfalls for the parties.