Ontario – omission to stipulate language of arbitration and then require bilingual arbitrator creates delays – #406

In Hodder v. Eouanzoui, 2020 ONSC 7905, Mr. Justice Robert N. Beaudoin asserted jurisdiction under section 16(3) of Arbitration Act, 1991, SO 1991, c 17 to appoint a substitute arbitrator in an administered arbitration where neither the parties’ agreement to arbitrate nor the administering institution’s rules provided a process to appoint a substitute. The institution temporarily lacked a sufficient number of bilingual arbitrators on its roster and, during that period, Applicant applied to the court for assistance.  The requirement that the arbitrator be bilingual did not appear in the agreement to arbitrate, arising after service of the notice to arbitrate, and appeared to result by consensus, combining the parties’ respective positions on the appropriate language of the arbitration. When confirming his orders, Beaudoin J. also formalized the bilingual status of the arbitration.

By Limited Scope Joint Retainer Agreement (“Retainer”) signed October 31, 2014 and November 4, 2014 by Respondents, Applicant undertook to represent Respondents in two (2) Ontario Superior Court motions.  First, to oppose a motion returnable on December 15, 2014.  Second, to bring a motion returnable on April 2, 2015.  Beaudoin J. at para. 1 of his reasons provides details on both motions. The Retainer contained the following agreement to arbitrate:

14. The clients agree that any and all disputes, claims and disagreements (including fee disputes )arising out of or in a connection with the retainer shall be submitted to a single arbitrator under Ontario law in accordance with the Arbitration Act, 1991, and the arbitration shall be conducted by an arbitrator with ADR Chambers Inc. applying the ADR Chamber rules. The clients agree to be bound by the ADR Chamber rules. In the event the parties cannot agree which arbitrator to use, then either party may write to ADR Chambers Inc and ask that it appoint one of its arbitrators, and such appointment shall be final and binding. The clients must initiate an arbitration concerning fees within 30 days of delivery of the solicitors’ bill, or within one year after its payment”.

The agreement to arbitrate stipulates no requirement that the arbitration be conducted in either English or French.

Applicant issued two (2) accounts which Beaudoin J. notes were “satisfied” by September 9, 2015.  Less than one (1) year later, on September 6, 2016 Respondents filed a notice of arbitration (“Notice”) which, among other statements, alleged negligence, disputed fees and noted a complaint to the Applicant’s governing law society (“LSUC”).  At para. 7 of his reasons Beaudoin J. reproduced the text of the Notice prepared by Respondents acting on their own behalf.

Respondents’ Notice proposed that French be “the first language of the arbitration” and that the arbitration proceed in London, Ontario.

Applicant’s interpretation of the Notice identified allegations of negligence in addition to intentional wrongdoing and assessment of the accounts and reported the Notice to Applicant’s liability insurer, Lawyers Professional Indemnity Corporation (“Law Pro”) which retained counsel for the non-assessment issues and relief sought in the Notice.  Counsel confirmed with ADR Chambers that his mandate was limited to negligence claims and did not include the fee dispute.

At paras 12-40 of his reasons, Beaudoin J. sets out the exchanges between the parties and ADR Chambers regarding conduct of the arbitration, culminating in an application by Applicant for directions under the Arbitration Act (“Application”).  That Application was first returnable August 2, 2019, rescheduled on consent to November 29, 2019, adjourned to April 30, 2020 and, due to COVID-19, postponed to August 13, 2020 at which time Beaudoin J. scheduled a December 14, 2020 hearing date.

The exchanges include Applicant’s proposals to bifurcate issues or suspend determination pending the LSUC complaint process, concerns raised by Respondents regarding Law Pro’s involvement in the arbitration, disagreements over the scope of the issues submitted to arbitration by the Notice and Respondents’ ability to amend the Notice absent an order as well as administrative issues occasioned by deposits of arbitration costs advances and their return to Respondents.  For the purpose of the hearing, Beaudoin J. order ADR Chambers to retain the advances made by Respondents until the hearing of the Application.

A key dispute stemmed from the requirement that the arbitrator be bilingual.  The Retainer’s agreement to arbitrate makes no mention of the language in which the arbitration must be conducted, from Beaudoin J.’s reasons, to be a requirement agreed to by the parties following receipt of the Notice.  The ADR Chambers’ Arbitration Rules (“ADR Chambers Rules”) at Rule 3.1 provide the opportunity for a claimant in its notice of arbitration to “include proposals” for the “language of the arbitration”.

A first arbitrator had been appointed but withdrew on June 12, 2019 without formal Terms of Appointment having been signed.  When withdrawing, the arbitrator waived her fee and proposed the return of Respondents’ deposit to Respondents.  Applicant objected to the return of the deposit, stating that the Retainer required an arbitrator at ADR Chambers.

ADR Chambers initially informed the parties that it would continue to hold the deposit against arbitrator fees and administration fees pending a decision by the parties whether they want to pursue arbitration under ADR Chambers Rules.  On July 3, 2019, ADR Chambers informed the parties that it was “having difficulty finding another bilingual arbitrator to conduct the arbitration, and as a result, the parties may have to look elsewhere to conduct the arbitration”.  These circumstances prompted Applicant to apply for directions under the Arbitration Act and ADR Chambers agreed to hold the deposit pending directions from the court.

The Application before Beaudoin J. arose because ADR Chambers had no other bilingual arbitrator on its roster other than the initial appointee.

[43] On December 2, 2020, and in preparation for the hearing of this Application, ADR Chambers responded to Golden’s inquiry that, in addition to the former [Arbitrator 1], they now had an additional bilingual arbitrator on its roster, the [Arbitrator 2]. ADR Chambers further informed Golden that it had arrangements with three Quebec arbitrators who could arbitrate bilingually. Golden was able to identify other bilingual arbitrators but these are not on the ADR Chambers’ roster”.

Beaudoin J. recorded that, initially, Respondents did not immediately confirm their consent to Arbitrator 2’s appointment.  “When informed that ADR Chambers now had another bilingual arbitrator on its roster, the Respondents would not immediately agree to the appointment of [Arbitrator 2] subject to his availability, even though this was the only possible outcome; by choice, or by default”.

Before engaging in his analysis, Beaudoin J. closed his summary of the parties’ chronology with the following:

[50] Although the arbitration was initiated by [Respondents], there is no evidence before me that they made any inquiries of ADR Chambers regarding the availability of another bilingual arbitrator prior to this hearing. The hearing of this Application was adjourned to December 16, 2019 to determine if [ Respondents] would accept the appointment of [Arbitrator 2] and to confirm his availability. On that date, his availability was confirmed by the Applicant, and the Respondents advised that they accepted his appointment as arbitrator”.

With reference at para. 53 to the fact that Respondents did not immediately agree to the appointment of Arbitrator 2, Beaudoin J. determined that the lack of agreement at that moment required him to pursue his determination after Respondents confirmed their agreement.

[54] Given the absence of an agreement, the court was required to consider the applicability of s.16(3)(a) and (5) of the Act. While the issues may now be “moot”, given the terms now agreed to, I find it necessary to address the arguments in the event there is a further dispute”.

Beaudoin J. excerpted sections 6 and 16 of the Arbitration Act, including section 16(3) and 16(5):

16(3) The court may appoint the substitute arbitrator, on a party’s application, if,

(a) the arbitration agreement provides no procedure for appointing the substitute arbitrator; or

(b) a person with power to appoint the substitute arbitrator has not done so after a party has given the person seven days’ notice to do so”. 

16(5) This section does not apply if the arbitration agreement provides that the arbitration is to be conducted only by a named arbitrator”.

Beaudoin J. summarized the parties’ respective positions.  At paras 45-47, he set out the relief sought by Applicant and its arguments.

Applicant sought a variety of orders, reproduced at para. 45, including, but not limited to:

(i) advice and direction regarding conduct of the arbitration initiated by Respondents;

(ii)  a direction that the arbitration resume in Toronto but before a substitute bilingual arbitrator and a different dispute resolution service provider other than ADR Chambers following payment by Respondents to the new arbitrator of a security deposit in the amount of $15,000.00; and,

(iii)  a direction setting out the terms on which ADR Chambers is to pay out a security deposit in all-inclusive amount of $15,000.00 paid to it by Respondents.

Applicants argued that, given that the institution identified in the Retainer “had no other bilingual arbitrators on its roster”, Applicant was justified in seeking directions from the court under the Arbitration Act.

At paras 48-50, Beaudoin J. set out Respondents’ arguments. Respondents objected to the Application, citing Jean Estate v. Wires Jolley LLP, 2009 ONCA 339 as authority that “restrict courts from interfering in arbitrations save and except for exceptional circumstances”.

They submit that this Court has no jurisdiction to hear this matter as the Retainer Agreement provides a mechanism for appointing an arbitrator. They further argue that their Retainer Agreement does provide a procedure for appointing a substitute arbitrator by reference to the ADR Chambers rules. Finally, they rely on the exception found in s. 16(5) of the Arbitration Act”.

At the hearing, Respondents confirmed their agreement to continue to arbitrate at ADR Chambers before a bilingual arbitrator, to bifurcate the matter and hear non-assessment issues first and that ADR Chambers retain the $15,000.00 deposit as security for its costs.

Beaudoin J. dismissed Respondents’ reliance on the terms of the Retainer to argue that the court had no jurisdiction to hear the Application.  He determined that ADR Chambers’ appointment procedure set out in the Retainer and providing for appoint of “one its arbitrators” was not available to the parties on July 4, 2019 and Applicant had no other alternative but to apply to the court.

He agreed with Applicant’s reliance on section 16(3) of the Arbitration Act.  The agreement to arbitrate in the Retainer set out no procedure for the appointment of a substitute arbitrator and Beaudoin J. saw no support for Respondents in Rules 5-2.3, 5-9 or 14 as they do not address appointment of a substitute procedure.

Even if it were applicable, rule 5-9 requires an agreement between the parties on an arbitrator who is not a member of ADR Chambers and the appointment is conditional on the selected arbitrator reaching an agreement with ADR Chambers and the parties with respect to the fees to be charged by that arbitrator. On the record before me, there is no evidence that such an agreement was considered or possible”.

Respondents also invoked application of article 16(5) which addressed those situations in which the arbitration is to be conducted by a named arbitrator.  Beaudoin J. rejected its relevance to the Application.  “In this case, there is no named arbitrator, only a determination of the arbitration service provider”.  He referred to Murphy v. Wise et al., 2010 ONSC 5185 to demonstrate the distinction between the case before him and those cases in which the parties identified a particular arbitrator.

[38] I can understand that if parties were wedded to one particular arbitrator, and only that arbitrator, they would not want a court imposing someone else on them. The use of the word “only” would achieve that purpose. They could put a provision in the arbitration agreement that if the named arbitrator were for some reason incapable of acting, the submission to arbitration would no longer be in effect as only the named arbitrator could be the arbitrator. The parties to this Agreement have not so provided, and it is perhaps understandable as the respondents were content with any of the four persons they proposed to the Murphy, one of whom was [S]. It is quite evident that the position the respondents now take that the arbitration falls with the resignation of [S] is driven not by their desire to have had only [S] as an arbitrator (they moved to have him removed for an apprehension of bias) but as part of their desire to rid themselves of their agreement to sell the Corporations in the market by making the argument that the entire settlement involving the sale of the Corporations has fallen through as a result of the resignation of [S]”.

Beaudoin J. held that, on the record, the parties had not “wedded” themselves to a particular arbitrator but, instead, “were prepared to accept whoever ADR Chambers appointed from its list of arbitrators”.

In conclusion, Beaudoin J. determined that his jurisdiction had been “properly invoked by the Applicant because ADR Chambers advised that it had no other bilingual arbitrators on its list of arbitrators”.

As part of his dispositive, in addition to inviting submissions on costs, Beaudoin J. issued the following orders pursuant to section 16(3) of the Arbitration Act:

1. The parties shall continue to arbitrate the issues set out in the Notice of Arbitration dated September 16, 2017 at ADR Chambers before [Arbitrator 2].

2. The arbitration shall proceed as a bilingual proceeding in London, Ontario.

3. ADR Chambers shall continue to hold the $15,000 deposit paid by the Respondents as security for its own costs.

4. The arbitration will be bifurcated, such that the non-assessment portion of the Notice of Arbitration shall be heard and determined first.

5. The Applicant’s request to have his costs “thrown away” on the motion to strike heard as preliminary matter is to be decided by the Arbitrator”.

urbitral notes – First, in addition to having promptly appointed a bilingual Arbitrator 1 following receipt of Respondent’s Notice and Applicant’s initial response, ADR Chambers rapidly addressed the composition of its roster for bilingual arbitrators.  As noted by Beaudoin J. at para. 43, in addition to identifying and adding Arbitrator 2 to the roster, ADR Chambers also added three (3) more alternatives off-roster with whom “it had arrangements”.   

Second, Beaudoin J. made the bilingual status a formal requirement of the arbitration.

Third, parties to an agreement to arbitrate are regularly urged to stipulate the language of their arbitration.  The appointment of a substitute arbitrator may have been avoided had the parties to the agreement to arbitrate considered the model clauses offered by ADR Chambers on its own website.

Standard Arbitration Clause

Any dispute, controversy or claim arising out of or relating to this contract including any question regarding its existence, interpretation, validity, breach or termination or the business relationship created by it shall be referred to and finally resolved by arbitration at ADR Chambers under the ADR Chambers Arbitration Rules. The place of the arbitration shall be ______________________________.

The Parties may wish to consider adding one or all of the following options:

There shall be __________ arbitrator(s) (1 or 3). (If 3, state whether each party may nominate an arbitrator and how the third arbitrator is to be selected.) (See Rule 5.4.)

The language of the arbitration shall be______________________________.

The Arbitral Tribunal must select its award from one of the final offers made by each of the Parties, in its entirety and without modification. The Arbitral Tribunal need not provide detailed reasons for its award.

An oral hearing need not be held. (See Rule 11.4.)

There will be no appeal from the decision of the Arbitral Tribunal on questions of fact, law, or mixed fact and law”.