Ontario – mediator appointed as arbitrator for disputes involving settlement negotiated during later arbitration – #403

Following an unsuccessful mediation phase before a mediator regarding disputes under a 2011 agreement, the parties in The Corporation of the Township of South Stormont v. The Kraft Heinz Company, 2020 ONSC 7641 engaged in arbitration before another professional during which the parties negotiated a 2017 settlement and agreed to arbitrate disputes before the mediator.  When disputes arose over the settlement, one party sought to resume the earlier arbitration but to appoint a new arbitrator.  The other party resisted, arguing that they had agreed to submit disputes regarding the settlement to the mediator. Mr. Justice James E. McNamara held that the dispute was not under the main 2011 agreement but fell within the express terms of the 2017 settlement. The dispute resolution in the parties’ settlement arguably constituted a med-arb agreement.

The Corporation of the Township of South Stormont (“Township”) operates a wastewater treatment plant which treats sewage (“Plant”) for residential and industrial users in the area.  The Kraft Heinz Company (“Company”) operates a cheese processing plant and signed a 2011 sewage agreement with the Township (“Agreement”).  The Agreement at section 3.7 contained what McNamara J. styled as a “limited arbitration provision”.

Disputes arose regarding the Company’s annual fair share of the Plant’s operating costs between 2012-2017 leading the Township to initiate arbitration under section 3.7 of the Agreement.  The parties appointed an arbitrator and set a hearing date.  Prior to the hearing, the parties undertook mediation before a mediator (“Mediator”) but did not resolve their dispute.

On the first day of the arbitration, the parties engaged again in discussions and reached a resolution which they confirmed by minutes of settlement (“Minutes”).   In their Minutes, the Township and the Company agreed that the Company’s responsibility for costs between 2012-2017 would be determined using data collected in 2018.  Among other provisions, the parties stipulated what would happen if they disputed the interpretation or implementation of the Minutes. At para. 24 of the Minutes, the parties also added that “section 3.7 of the 2011 Agreement will remain unchanged as it relates to the arbitration rights of the parties” but also added the following at para. 39.

39. Any dispute or disagreement over the interpretation or implementation of these Minutes of Settlement, or in respect of any necessary and ancillary definitive agreements to implement the terms of these Minutes of Settlement, including the nature and scope of any such definitive agreements, or in respect of the process to be carried out under paragraphs 19-21 hereof to determine responsibility for 2012 through 2018 fair share costs, will be submitted to the [Mediator]”.

In compliance with the Minutes, the Township built a new metering chamber at the Company’s cheese plant to assist with data collection during 2018.  Despite collecting the data, the Township disputed the results it collected. 

[10] On this application, the Applicant Township argues that the data collected over the year 2018 was flawed and in consequence the calculated residential loadings for the Village of Ingleside were much higher than they should have been. It is their allegation that these unexplained loadings could not have been only as a result of Ingleside’s residential wastewater, and had to be a result of sludge beads escaping from the respondents’ wastewater treatment facility and not being captured in the samples collected at the metering station. The respondent disagrees totally with these allegations”.

The Township filed an application to the court seeking an order that the arbitration resume and that the court appoint a new arbitrator.  The Company objected. It argued that the dispute over the 2018 data fell within the terms of their Minutes and that the dispute must be referred to the Mediator for arbitrator.

McNamara J. isolated a single issue: whether the dispute over the 2018 data was an issue contemplated by the Township and the Company when negotiating their Minutes. 

The Township argued that the dispute raised a “new factual dispute” which was not contemplated by the parties when negotiating the Minutes and did not involve an interpretation or implementation of the Minutes. The dispute must be arbitrated under section 3.7 of the Agreement and not para. 39 of the Minutes.

The Company argued that para. 39 constituted an exception to the courts’ approach that an arbitrator has no jurisdiction to resolve disputes over settlements arrived at during the arbitration.

[15] The respondent argues that the common law courts have consistently held an arbitrator does not have jurisdiction over a settlement agreement executed in the context of an existing arbitration, unless the parties expressly confer that jurisdiction as a term of the settlement agreement. In this case, they submit, the Minutes do the exact opposite by providing for a separate dispute resolution procedure to be conducted by [Mediator]. The dispute here, they submit, falls squarely within the wording of paragraph 39 of the Minutes”.

McNamara J. agreed with the Company.

[22] In my view the dispute falls within the wording of paragraph 39, and the parties granted exclusive jurisdiction to [Mediator] to determine the issue. Pursuant to that same paragraph, he may make a summary determination based on brief written representations by counsel. He also has jurisdiction to direct an oral hearing be held if he feels one is necessary in view of the nature of the matter in dispute”.

urbitral notes – First, on consent, the parties appointed the Mediator to serve as arbitrator for disputes under the Minutes.  The Mediator would possess some confidential information shared by the parties to the initial mediation and the parties expressly agreed to return to him if and when they disputed the Minutes. The facts confirm the acceptance by sophisticated parties of med-arb as a solution to their disputes.