Ontario – jurisdiction to correct/amend document affecting others reserved to Superior Court by legislation – #493

In Mensula Bancorp Inc. v. Halton Condominium Corporation No. 137, 2021 ONSC 2575, Madam Justice Marie-Andrée Vermette set aside an award in which the arbitrator, unsatisfied with the interpretation given by the “plain language” of a condominium declaration, “purported to deal with and correct what he thought were errors and inconsistencies”.  Doing so “crossed the line between interpretation and correction/amendment” and decided a matter beyond the scope of the agreement to arbitrate, justifying Vermette J.’s intervention under section 46(1)3 of the Arbitration Act, 1991, SO 1991, c 17.  Because a condominium declaration is “the equivalent of the constitution of a condominium corporation” and, registered, impacts current and prospective condominium owners, section 109 of the Condominium Act, 1998, SO 1998, c 19 reserves jurisdiction to the Superior Court to correct alleged errors and inconsistencies. The parties also reiterated that jurisdiction in their agreement to arbitrate which itself appeared in their applicable documents by virtue of that same legislation.

Mensula Bancorp Inc. (“Mensula”) and Halton Condominium Corporation No. 137 (“HCC”) disputed access to 43 parking units owned by Mensula and located in the HCC condominium complex.  In addition to a further 166 parking units, the HCC complex also contains 82 residential units along with lobby access, stairwells and elevator service. 

Mensula owns the property adjacent to HCC and its employees use Mensula’s parking units.  Access to those parking units requires passage through a stairwell, hallway and elevator located in HCC’s residential section.  Those passage points were locked at one point thereby rendering the Mensula’s parking units inaccessible.

HCC’s declaration (“Declaration”), registered under the Condominium Act, 1998, SO 1998, c 19 (“Condominium Act”), included definitions for “Dwelling Units”, “Parking Units” and “Common Elements” along with provisions on exclusive use and restrictive access to Common Elements.  HCC’s by-law no. 6 (“By-law”) stipulated mediation and arbitration as dispute resolution processes, further to sections 125 and 132 of the Condominium Act. The agreement to arbitrate at section 1.1 read as follows:

1.1 Disputes relating to the breach, termination, existence, validity, performance, interpretation or enforceability of any of the agreements listed in Section 132(2) of the Act or Disputes arising in connection with the documents referred to in Section 125 of the Act, other than those which must be resolved in the Courts or those which may be resolved in the Courts unless the Parties agree to submit their dispute to mediation and arbitration, shall be addressed and resolved in accordance with the provisions of this By-law”.

Section 4.11 further set out the arbitrator’s powers.  See para. 10 for the full text of those powers reproduced from the By-law.

Mensula served on HCC a March 23, 2020 notice to arbitrate seeking determination of three (3) issues:

(i) whether Mensula “ought to have” access to HCC’s common elements and scope of that access;

(ii) whether HCC 137 failed to properly maintain the Common Elements relating to Mensula’s parking units; and,

(iii) whether HCC’s conduct constituted oppression under section 135 of the Condominium Act.

Following a hearing, the arbitrator issued an award (“Award”) in which HCC prevailed in issue (i) and Mensula prevailed in issue (ii) and (iii).

Mensula applied under section 46 of the Arbitration Act, 1991, SO 1991, c 17 to set aside the Award on issue (i).  The other two (2) issues remained unchallenged.

Vermette J. noted that, in the arbitration, HCC had unsuccessfully argued that its hallways and lobbies were destined for “recreational purposes” and, as such, off limits for those using parking units.  She noted the arbitrator’s citation of the principles of contractual interpretation set out in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 (CanLII), [2014] 2 SCR 633 and, at para. 16 of her reasons, reproduced the arbitrator’s reasoning on his own contractual interpretation.  In his reasoning, the arbitrator noted the “inconsistencies” in the Declaration which he stated “need to be reconciled in a common sense interpretation of the Declaration”.  The following three (3) paragraphs lead into that section and Vermette J. underlined portions for emphasis:

44. On its face, paragraph 1, under section III, of the Declaration, “Use”, provides for a broad right of use of the common elements. However, that Use, when interpreted plainly means that Mensula, its employees, and visitors, may make use of all parts of the residential condominium, all of its hallways, lobby, etc ., other than the recreational facilities and the restricted common elements.

45. In my view, this leads to an absurd result because it could never have been intended that the owner or tenants of these 43 parking units could simply wander through the residential building for no known purpose. This would be antithetical to the very purpose of the Declaration which is to frame sensible rules governing community living. Mensula implicitly acknowledges this by limiting its actual relief to access to points of ingress and egress, through the residential condominium. This request also requires that HCC 137 make alterations to its current security systems, and its parking elevator, which currently also provides access to residential floors above the Lobby.

46. The problem I have with that proposition is that the Declaration makes no express reference to access to these points of ingress and egress; that as a matter of physical fact, these doors are locked equally against all unit owners, including dwelling unit owners; and the Declaration does make explicit reference to specific access”.

The balance of the excerpted portion from the Award contains variations on that response and additional illustrations of the exegesis which lead the arbitrator to endorse HCC’s response to Mensula’s access requirements.

Mensula raised three (3) grounds against the Award’s determination of issue (i) in favour of HCC, arguing that the arbitrator:

(a)  exceeded his jurisdiction under section 46(1)3 of the Arbitration Act and s. 109 of the Condominium Act; 

(b)  did not treat Mensula equally or fairly pursuant to section 46(1)6 of the Arbitration Act; and,

(c) followed an arbitration procedure which did not comply with the Arbitration Act pursuant to section 46(1)7. 

Vermette J. elected to deal with only the first as its resolution determined the result of the application.  Before engaging in her own analysis, Vermette J. summed up Mensula’s submissions on ground (a).

[19] With respect to the first ground, Mensula’s position is that the arbitrator exceeded his jurisdiction by re-writing and introducing new terms to the Declaration absent any statutory or contractual provision that he could do so. Mensula submits that its rights under the Declaration are plain and clear: each Owner has the full use, occupancy and enjoyment of the whole or any part of the Common Elements, except for Recreational Facilities. It argues that the arbitrator exceeded his jurisdiction when he rejected the plain meaning of the Declaration as “absurd” and effectively amended the explicit definitions in the Declaration, thereby extinguishing Mensula’s rights under the Declaration as a tenant-in-common. Mensula submits that as a result of the arbitrator’s re-writing of the Declaration, the rights of Parking Unit Owners are changed from almost total use rights to the Common Elements into virtually no use rights. Mensula also relies on section 109 of the Condo Act and states that only the Superior Court of Justice has the jurisdiction to amend the Declaration if it is satisfied that the proposed amendment is necessary or desirable to correct an error or inconsistency that appears in the Declaration or that arises out of the carrying out of the intent and purpose of the Declaration”.

Vermette J. addressed Mensula’s submissions in reverse order.  She first addressed the section 46(1)3 argument which allows a court to set aside an award  if it “deals with a dispute that the arbitration agreement does not cover or contains a decision on a matter that is beyond the scope of the agreement”.  She referenced Alectra Utilities Corporation v. Solar Power Network Inc., 2019 ONCA 254 paras 25-27.  Vermette J. determined that HCC’s By-law contained the parties’ agreement to arbitrate and it “expressly excludes from its scope disputes that must be resolved in the courts or disputes that may be resolved in the courts unless the parties agree to submit their dispute to mediation and arbitration”.

At paras 25-33, Vermette J. examined the nature of the arbitrator’s reasoning and response to the inconsistencies identified.  Vermette J. refrained from “expressing any view with respect to the reasonableness of the arbitrator’s conclusions regarding errors and consistencies in the Declaration” but concluded that his Award on issue (i) “crossed the line between interpretation and correction/amendment”.  She pointed out that the applicable legislation, sections 107-110 of the Condominium Act, provided that a condominium corporation’s declaration, such as HCC’s Declaration, could only be amended in the manner set out in those sections. Section 109 requires that a party seeking such an amendment apply to the Superior Court.

Vermette J. observed that changes to the Declaration would be broader than just resolving a dispute between the parties to an arbitration.  She further observed that “a declaration under the Condo Act is not a private contract negotiated between two parties, but, instead, a special form of contract that must adhere to certain statutory requirements”.  Without expressly tying together those observations with the requirement in section 109, Vermette J. still emphasised the consequences of any change to a declaration.

A declaration is the equivalent of the constitution of a condominium corporation. Purchasers rely on the rights and interests contained in the declaration in forming their decision to purchase their condominium units: Metropolitan Toronto Condominium Corporation No. 590 v. Registered Owners, 2019 ONSC 4484 at paras. 47-48; rev’d on other grounds: [Metropolitan Toronto Condominium Corporation No. 590 v. The Registered Owners and Mortgagees of Metropolitan Toronto Condominium Corporation No. 590,] 2020 ONCA 471. This explains, in part, why amendments to a declaration are ineffective until they have been registered: see subsections 107(7), 109(4) and 110(4) of the Condo Act”.

Vermette J. did not express any opinion on the reasoning set out in the Award on issue (i) and limited her determination to a jurisdictional issue.

While the issue of Mensula’s access to the common elements of HCC 137 was properly before him, he was not satisfied with the answer provided by the plain language of the Declaration, and he purported to deal with and correct what he thought were errors and inconsistencies in the Declaration. In doing so, he decided a matter that was beyond the scope of the arbitration agreement in this case because the correction of errors and inconsistencies in the Declaration is a matter for the Superior Court of Justice under section 109 of the Condo Act”.

Vermette J. also commented that, after identifying and correcting perceived errors and inconsistencies in HCC’s Declaration, the arbitrator might have better responded by “pointing the parties to other avenues if they wished to have the  Declaration corrected and amended”.

Vermette J. set aside the Award on issue (i) and refrained from remitting the issue back to the same arbitrator or a new one designated by the parties, given the absence of submissions on the appropriate follow up.  She indicated her availability to remain involved on that designation if need be.

urbitral notes – First, for the earlier Arbitration Matters note on Alectra Utilities Corporation v. Solar Power Network Inc., 2019 ONCA 254  see “Ontario – once court finds arbitrator acted within jurisdiction, it cannot consider merits in exercise of that jurisdiction – #184”. The facts of the case and a summary of the reasoning in first instance, Alectra Utilities Corporation v. Solar Power Network Inc., 2018 ONSC 4926, appear in the prior Arbitration Matters note “Ontario court’s contractual interpretation confirms arbitrator’s jurisdiction to hear dispute but not award lost profits”.

Ontario’s Court of Appeal held that, under section 46(1)3 of the Arbitration Act, 1991, SO 1991, c 17, once a court satisfies itself that an arbitrator had jurisdiction to resolve a particular dispute, absent a right of appeal, the court has no authority to delve into the merits of the award and review its for reasonableness.  The Court held that a jurisdictional question must be answered correctly but “neither requires nor authorizes review of the substance of an arbitrator’s award”.

Second, for a decision addressing whether an opportunity to apply to the court eliminates jurisdiction for an arbitrator, see the earlier Arbitration Matters note “Ontario – legislation permitting application to court does not oust arbitrator’s jurisdiction for same remedy – #485” regarding rporation No. 1636, 2021 ONCA 360, Ontario’s Court of Appeal held that wording in the Condominium Act, 1998, SO 1998, c 19 which permits an application to the Superior Court for relief regarding oppression set out in that legislation “does not oust the jurisdiction of an arbitrator to consider the same relief, if that relief is part of the dispute in question that properly falls within the terms of the arbitration provision”.  The Court also expressly accepted that a stay order would result in “parallel proceedings” – arbitration between two (2) parties and court litigation with all four (4) over the balance of the dispute – but concluded that parallel proceedings did not “detract from the central point” that two (2) of the parties must arbitrate.  The Court did observe that the other non-parties to the arbitration “might voluntarily agree to be part of the arbitration proceedings”.

Third, for a review of whether an agreement to arbitrate applies to a dispute and the scope of the court’s involvement in resolving its application, see the earlier Arbitration Matters note “Ontario – appeal court reaffirms jurisdiction for appeal of stay decision where decision holds arbitration agreement does not apply – #385” regarding Toronto Standard Condominium Corporation No. 1628 v. Toronto Standard Condominium Corporation No. 1636, 2020 ONCA 612. Ontario’s Court of Appeal delivered a masterclass in judicial reasoning/drafting.  It set out the role of judicial interpretation of statutes, observed how a wrong interpretation is never right, set out its approach to overruling its own precedents, acknowledged new guidance given in TELUS Communications Inc. v. Wellman, 2019 SCC 19 (CanLII), [2019] 2 SCR 144 on section 7(5) of Arbitration Act, 1991, SO 1991, c 17 but distinguished its impact from the Court of Appeal’s well-accepted reasoning in Huras v. Primerica Financial Services Ltd., 2000 CanLII 16892 (ON CA) on section 7(6)’s application.  Reasserting its interpretation on section 7(6), the Court held that it did have jurisdiction to hear an appeal of a motion judge’s decision purporting to exercise discretion under section 7(5) to deny a stay. On the merits of the appeal, the Court then applied the Supreme Court’s interpretation which overturned the Court of Appeal’s interpretation on section 7(5).