Ontario – jurisdiction challenge must be raised early as preliminary objection, not as defence at merits stage – #154

In FCA Canada Inc. v. Reid-Lamontagne, 2019 ONSC 364, Madam Justice Nancy J. Spies refused an application to set aside a final award challenged on the basis of an excess of jurisdiction, holding that the applicant had failed to raise the objection in a timely fashion. Though the applicant argued that it had raised the objection, Spies J. determined that it had done so as a substantive defence later on at the merits stage and not as a preliminary objection earlier on in the process.

The dispute involved a motor vehicle and the role, if any, that an aftermarket component played in symptoms leading to the vehicle owner’s claims. FCA Canada Inc. (“FCA”) as the manufacturer asserted that that the agreement to arbitrate only covered parts and components used in the assembly of the vehicle and delivered by the manufacturer to its authorized dealer and installed by the authorized dealer.

The aftermarket component was installed after the vehicle’s delivery to the dealer and by a third-party but before delivery to the vehicle owner. The purchase/sale documents did not itemize the addition of the aftermarket component, leaving only a single price for the vehicle. The vehicle owner accepted the vehicle but without apparent knowledge of the role of the third-party.

FCA applied under section 46(3) of Ontario’s Arbitration Act, 1991, SO 1991, c 17 to set aside the May 5, 2018 final award (“Award”) on the grounds that the Award “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”.

The Award issued from an arbitration between a new vehicle owner and FCA as the manufacturer conducted in accordance with the Canadian Motor Vehicle Arbitration Plan (“CAMVAP”).  A detailed booklet sets out the CAMVAP arbitration process and arbitration agreement.  In her reasons, Spies J. noted that a vehicle owner’s decision to undertake arbitration is voluntary.

[5] CAMVAP is an alternative dispute resolution program whereby disputes between automobile manufacturers and their customers can be resolved through arbitration. It is intended to be an inexpensive, expeditious alternative to the courts that does not require consumers to have legal counsel. The parties consented to this process in an Agreement for Arbitration (the “Arbitration Agreement).

Spies J. observed that, for the arbitration, “FCA was represented by a manager with decades of experience in CAMVAP arbitrations” whereas the vehicle owner was self-represented.

In the course of the arbitration, the arbitrator issued two (2) consent awards (“Consent Awards”) before proceeding to a merits hearing.

[8] On September 18, 2017, FCA questioned whether the Claim was eligible for Arbitration on the grounds that it had not been given an opportunity to resolve the dispute. The Arbitrator convened a teleconference on eligibility. He then granted a consent award confirming that Lamontagne agreed to make her Vehicle available for inspection by FCA and FCA agreed that the Vehicle was “now eligible for the CAMVAP process” (the “First Consent Award”).

[9] FCA inspected the Vehicle. Lamontagne submitted videos evidencing some Symptoms. The Arbitrator then directed, with FCA’s consent, that the Claim proceed to a hearing on the merits on December 14, 2017 (the “Second Consent Award”).

The Consent Awards played a determinative role when it came to challenging the Award in court. In his Award, the arbitrator observed that FCA’s objections to the eligibility of the arbitration were satisfied in the Consent Awards and that no other eligibility objections remained. Spies J. characterized that observation as “a key finding”.

In particular, during the arbitration, FCA argued that it should not be held responsible for any symptoms experienced in the vehicle created by an aftermarket component. FCA relied on the express wording of section 4.4.15 of the Arbitration Agreement to prevent the vehicle owner from arbitrating the dispute. In that section, the parties to the Arbitration Agreement expressly agreed that the vehicle owner could not arbitrate:

4.4.15. Relating to any Claim or allegation of defect, in respect of parts, components, or accessories which were not authorized by the Manufacturer and were not ordered and installed by the Manufacturer or an Authorized Dealer at the time that Your Vehicle was sold to the original retail customer”.

Spies J. considered that FCA had raises the issue of the aftermarket component as a defence on the merits and not as a preliminary objection regarding jurisdiction. She disagreed with FCA’s argument that the arbitrator had misconstrued the nature of how and when FCA raised the issue of the component not qualifying as “Materials” under the Arbitration Agreement. As a result, Spies J. determined that FCA had failed to comply with section 17(3) of the Arbitration Act in raising its objection to jurisdiction.

17(3) A party who has an objection to the arbitral tribunal’s jurisdiction to conduct the arbitration shall make the objection no later than the beginning of the hearing or, if there is no hearing, no later than the first occasion on which the party submits a statement to the tribunal.

Spies J. rejected FCA’s argument that the arbitrator had failed to deal with the jurisdiction issue in the Award. Rather, she found that the FCA had consented to arbitration of the dispute and had allowed the arbitration to proceed.

I agree with the submission of the respondent that FCA was required to raise a jurisdictional objection promptly if it believed that the Arbitrator lacked jurisdiction to determine the Claim, or if FCA believed that determining the Claim would cause the Arbitrator to exceed his authority. FCA did not do so. Instead, it raised this as a defence on the merits and proceeded with the Arbitration. Having lost on the merits, the Applicant cannot now re-cast the issue as one of jurisdiction.

Spies J. referred to The Piazza Family Trust v. Veillette, 2011 ONSC 2820 which, at paras 70-71, held that section 17(3) confirmed that a party’s conduct could constitute a waiver of an objection:

[70] The intention of this section is to prevent parties from participating in arbitration proceedings and withholding a possible objection to the jurisdiction of the arbitrator until they become aware of the result. I find that the Court should refuse to hear a jurisdictional objection, which was not raised at the beginning of the arbitration hearing, especially in circumstance where it was Piazza and Reitano who obtained an order directing that the claims against them personally determined by the arbitrator.

[71] If the terms of section 17(3) of the Arbitration Act were not enforced in these circumstances, then this section would have no meaning and there would be no disincentive to parties proceeding with an arbitration hearing and then later objecting to the arbitrator’s jurisdiction before the courts if they were dissatisfied with the results. I find that section 17(3) of the Arbitration Act was intended to prevent parties from seeking the benefit of arbitration and proceeding without objection and then attempting to contest the jurisdiction of the arbitrator once the result is known.

Spies J. applied that reasoning to FCA’s conduct in the case before her and considered that the issue had not been raised in a timely fashion.

[42] In my view, even if FCA had a valid jurisdictional argument on this basis, it cannot raise it now given that it did not object to the jurisdiction of the Arbitrator on this basis before the commencement of the hearing on the merits and the Arbitrator was never asked to consider his jurisdiction on this basis.

See also Nasjjec v Nuyork, 2015 ONSC 4978 in which a non-party to a contract containing the arbitration clause was held to be bound by the resulting award in the arbitration to which it did become a party, holding at para. 152 of that decision that section 17(3) creates a “creates a positive duty to deal with jurisdiction issues before the arbitrator”.

Spies J. provided alternative analyses addressing FCA’s other arguments in the event that she was mistaken on her principal analysis.

At paras 45- 56, she considered whether the arbitrator had posed the correct question and determined his jurisdiction or was his inquiry beyond the scope of the Arbitration Agreement. Spies J. did not accept that the Award raised a “true question” of jurisdiction as anticipated by Mexico v. Cargill, Incorporated, 2011 ONCA 622, and recently applied by Consolidated Contractors Group S.A.L. (Offshore) v. Ambatovy Minerals S.A., 2017 ONCA 939. Interpreting the Arbitration Agreement or the findings of fact regarding a “Current Defect” were not “true questions” of jurisdiction.

[55] In assessing whether the Arbitrator exceeded the scope of the terms of jurisdiction, this Court cannot review the merits of the Arbitrator’s decision that there is a Current Defect. The result of the Arbitrator’s inquiry is not reviewable – on the correctness standard or otherwise. That is really what the applicant is asking this Court to do.

An issue for the parties to the CAMVAP Arbitration Agreement is that terms key to the dispute were not defined in the Arbitration Agreement. Terms such as “defect” (paras 26, 61) and “authorized” (para. 64) were not included and therefore left to the arbitrator to determine of the facts of the file before him though “Authorized Dealer” was defined.

At paras 57-72, Spies J. considered whether the Award was unreasonable. Applying PQ Licensing S.A. v. LPQ Central Canada Inc., 2018 ONCA 331, she noted that a decision is reasonable if it falls within a range of possible outcomes defensible in respect of the facts and the law. The question is not whether the court would have reached the same decision as the arbitrator and the existence of an alternative interpretation did not make the Award unreasonable.