In The Tire Pit Inc. v Augend 6285 Yonge Village Properties Ltd., 2022 ONSC 6763, Justice Vermette dismissed an application for leave to appeal an award and the appeal itself. The grounds of appeal did not raise questions of law which were subject to appeal pursuant to subsection 45(1) of the Arbitration Act, 1991, S.O. 1991, c. 17 (“Act”) and had no importance beyond the parties. In any event, if she was wrong, she found that they lacked merit.
The Appellant/Applicant (the “Tenant”) sought leave to appeal a final award dated October 29, 2021, pursuant to subsection 45(1) of the Act). Justice Vermette noted that although it was not clear in its Notice of Appeal/Application for leave to appeal, the Tenant also appeared to seek to set aside the award pursuant to subsections 46(1)3 [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] and 46(1)6 [the applicant was not treated equally and fairly, was not given an opportunity to present a case or respond to another party’s case] of the Act.
The dispute – The Tenant entered into a commercial lease agreement dated December 16, 2013, with the original landlord. The Respondent (the “Landlord”) purchased the leased premises and became the landlord of the Appellant/Applicant on July 31, 2020. In 2021, the parties disputed whether the Tenant had validly exercised its option to extend the lease for a further term of 5 years within the time limit and in the manner prescribed by the lease. The Tenant and Landlord brought parallel applications to determine this issue (among others), which were heard by Justice Vermette. In a decision dated May 21, 2021 (found at 2021 ONSC 3728), she found that the Tenant had validly exercised its option, but that the parties had not reached agreement on the Base Rent for the extension term. Justice Vermette quoted the language of the lease concerning the referral to arbitration if the parties could not agree on that issue (para. 5):
“Base Rent for the extension Term shall be… the fair market rental for similar premises in the area of the Building at the time of the extension, but in no event shall the Base Rent be less than the Base Rent payable during the last year of the Term. If the parties are unable to agree on the fair market rental, if applicable, within three months prior to the commencement of the extension Term, the matter shall be referred to arbitration in accordance with the Arbitrations Act, 1991 (Ontario) (sic).”
She directed the parties to arbitrate that issue.
The arbitration – On July 13, 2021, the parties entered into terms of appointment with the Arbitrator, which contained an Agreement to Arbitrate Dispute. It described the dispute and the scope of the arbitration as follows: “[t]he Parties are involved in a dispute… arising out of a commercial lease (the “Lease”) for the premises… (the “Premises”). More specifically this will involve a determination of the fair market rent for the Premises commencing January 1, 2020 as per the provisions of the Lease[.]”
The arbitration took place on October 19 and 20, 2021. In his award dated October 29, 2021, the Arbitrator found that the Base Rent was to be determined by examining the “fair market rent” for similar premises in the area of the building at the time of the extension and he did so based upon expert evidence adduced by the respondent.
The matter then came before Justice Vermette again when the Tenant sought leave to appeal the Arbitrator’s award.
The appeal – Justice Vermette noted that the parties’ arbitration agreement did not deal with appeals; therefore, pursuant to subsection 45(1) of the Act, leave to appeal was permitted only on a question of law and leave was required, which would only be granted if she was satisfied that: (a) the importance of the matters at stake in the arbitration justifies an appeal; and (b) determination of the question of law at issue will significantly affect the rights of the parties.
Among other things, the Tenant argued that the Arbitrator had made findings that were inconsistent with and misinterpreted Justice Vermette’s May, 2021 decision. Justice Vermette disagreed. She found that none of the other grounds of appeal raised questions of law (para. 30):
“They all raise questions of fact or questions of mixed fact and law, including issues of contractual interpretation of the Lease. [The Tenant] has not identified any instances where the correct legal test was not applied by the arbitrator. Virtually all of the arguments raised on this application were raised and considered by the arbitrator.”
In any event, she found that none of the issues raised met the test for leave to appeal. None would have an impact beyond the parties to this dispute. Nor would they have “the degree of generality or precedential value that is generally expected of questions of law”. Moreover, granting leave to appeal would not contribute to the consistency of the law, “but, rather, would only provide a new forum for the parties to continue their private litigation”.
Therefore, she found that none of the grounds raised issues of law and denied leave to appeal. But if she was wrong and that the grounds relating to the arbitrator’s alleged inconsistencies or misinterpretation of her May 21, 2021, order did raise questions of law, the appeal was dismissed because those grounds lacked merit.
The set-aside application – The Tenant argued the following grounds which, if established, could result in a set aside of the award: subsections 46(1)3 [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] and 46(1)6 of the Act [the applicant was not treated equally and fairly, was not given an opportunity to present a case or respond to the other party’s case].
Justice Vermette found that there were no grounds to set aside the award. The essence of the Tenant complaint was the alleged unfairness of the merits award, not about the fairness of the arbitration process. For example, it complained that the Arbitrator had failed to act fairly in giving sufficient legal effect to the word “fair” in determining “fair market rent”. Also, the arbitrator failed to find that the delay in bringing the arbitration was “unconscionable, prejudicial and unfair in the circumstances”. Moreover, the Tenant was too late to raise objections about the jurisdiction of the Arbitrator. First, the Tenant did not argue before the Arbitrator that he lacked jurisdiction. Second, despite the Tenant’s arguments to the contrary, the Arbitrator limited his findings to matters which were within the scope of the arbitration clause.
Justice Vermette dismissed the application.
First, compare Justice Vermette’s decision to decide both the leave to appeal application and the appeal together with Esfahani v Samimi, 2022 ABCA 178. It decided that leave to appeal must be sought first and to deal with them together is an error of law. See a recent Case Note on this decision: Alberta – Appeal process under s. 44(2) of the Arbitration Act clarified – #623.
Second, she described the Tenant’s grounds for appeal as follows (at para. 13): “ [The]… Notice of Appeal has 46 pages and lists 48 grounds of appeal / alleged errors of law. The grounds are extremely repetitive.” She then listed only the 15 “main ones”. One of them related to the fact that the Arbitrator awarded the Landlord rent going back to the date of the extension term, January 1, 2020, even though it had not yet purchased the property and was not the Landlord; however, the former landlord was not a party to the arbitration. Is that an error of law? Hard to tell, but Justice Vermette did not focus on it. Also, the Tenant raised the issue of res judicata as a ground for appeal. Justice Vermette found that the case law in Canada is divided on the issue of whether res judicata is an issue of law, and she did not weigh into that debate. Presumably, had she done so, she would have dismissed that ground of appeal on its merits. This is a reminder of the advocacy advice to stick to your best arguments or they may get lost!
Third, the jurisdiction question raised is interesting. The Tenant included as a ground of appeal that:
“[t]arbitrator failed to acknowledge that, despite time being of the essence under the Lease, the arbitration was not commenced until 22 months after the Notice of Renewal was delivered while the Lease contemplates that the arbitration will take place within three months of the delivery of the Notice of Renewal. The arbitrator failed to find that the delay in bringing the arbitration for the determination of renewal base rent was unconscionable, prejudicial and unfair in the circumstances, and he failed to consider that he may have in law lost jurisdiction because of this delay.”
The Tenant’s argument appears to be based upon the language in the Lease, “[i]f the parties are unable to agree on the fair market rental, if applicable, within three months prior to the commencement of the extension Term, the matter shall be referred to arbitration in accordance with the Arbitrations Act, 1991 (Ontario) (sic).” This issue seems to turn on whether the language requires the referral to arbitration within three months of the parties’ inability to agree on Base Rent, or if the parties cannot reach agreement within three months before the commencement of the extension term. Justice Vermette did not engage in this analysis. It is not clear from Justice Vermette’s reasons who was the claimant in the arbitration, but she found that neither party raised this objection before the Arbitrator and it was too late to raise it now. Her reasons do not indicate whether she considered that the parties entered into an agreement to arbitrate in July, 2021, and whether that constituted consent of the parties to submit their dispute to arbitration – even if it was out of time under the terms of the Lease. She also stated that, in any event, the argument was without merit because she had ordered the parties to arbitrate in May, 2021. Neither party appealed that order.