In 547131 Ontario Limited v. MPI Torgan, 2020 ONSC 3186, Madam Justice Carole J. Brown disagreed that terms submitted by the arbitrator and signed by the parties overwrote the parties’ initial agreement in their main contract regarding appeals of any arbitral award. The arbitrator’s terms covered conflicts, compensation, the services of an arbitral secretary, cancellation policy, confidentiality, immunity and administration issues. Brown J. identified no indicia that the arbitrator’s terms altered the initial agreement that the award would be “final and binding” and not subject to appeal, even on a question of law with leave of the court.
By April 15, 1987 lease (“Lease”), MPI Torgan Properties Inc. (“MPI”) leased property from 547131 Ontario Limited (“547”) for use as an office and retail complex for a term of ninety (90) years. Comprised of three (3) thirty (30) year periods, the Lease provides that the rent be reset at the beginning of each period.
MPI and 547 were unable to agree on the meaning of “Appraised Value” for use in determining “Minimum Annual Rent”. 547 argued that the land use mentioned in the “Appraised Value” clause in the Lease be a mixed-use residential/commercial development. MPI countered, arguing that the land use be a mixed-use office/commercial shopping centre compliant with zoning bylaw and actual use of the land.
547 and MPI submitted their dispute to arbitration as required by the provisions in their Lease. In her reasons. Brown J. provides excerpts, as noted below, but only a summary of the full provisions. The summary mentions that arbitration applies to those disputes “where arbitration is permitted or required under the Lease”.
“These arbitration provisions set forth the rules governing arbitration, the means for selection of an arbitrator or arbitrators, the compensation of the arbitrator, which is to be shared equally, and the Award of the arbitrator which is to be rendered in writing”.
Article 4.01(a) of the Lease stipulates that disputes regarding the Minimum Annual Rent “shall be determined by arbitration”. Article 24(d) expands on the process, specifying that the arbitration award “shall be final and binding.”
“The decision and reasons therefor of the single arbitrator, or the decision and reasons therefor of the arbitrators, or a majority of them, shall be drawn up in writing and signed by the single arbitrator or by the arbitrators, or a majority of them, and shall be final and binding upon the parties hereto as to any question or questions so submitted to the arbitration and the parties shall be bound by such decision and perform the terms and conditions thereof”.
MPI and 547 engaged in arbitration and, at as outlined at para. 8 of the reasons, agreed on the arbitrator, the scope of the arbitration and bifurcation of the issues. They contacted the arbitrator to confirm availabilities and absence of conflict and they referenced the arbitration procedure set out in the Lease.
The arbitrator responded to counsel for MPI and 547, confirming “he would be able to arbitrate the issue and attached a copy of his standard proposed arbitration terms for their review”. The terms provided by the arbitrator “were subsequently populated with the issues to be determined and signed by the parties”.
The arbitrator issued his award June 21, 2019 (“Award”) in which he determined that the maximum permissible use of the lands under the definition was as a commercial development and not as a residential/commercial condominium development.
547 applied for leave to appeal, arguing that (i) the arbitrator made several extricable errors of law subject to appeal under section 45(1) of the Arbitration Act, 1991, SO 1991, c 17 and (ii) “the provisions of the Lease regarding arbitration are not effective, as the parties entered into a new arbitration agreement with the arbitrator, which is the governing document”.
MPI resisted the application, arguing that (i) the arbitrator made no errors and (ii) the Lease governed the arbitration process and the stipulation of “final and binding” precluded an appeal on any issue.
This note focuses on whether the terms signed with the arbitrator altered or overwrote the arbitration provisions in the Lease.
547 argued that the Lease no longer governed the dispute as the parties were bound the terms entered into at the request of the arbitrator. Those terms were signed May 31, 2018. 547 submitted that the terms signed by the parties at the request of the arbitrator “is the governing document” and because those terms are silent on appeals, section 45(1) applies, allowing for appeals on a question of law, with leave of the court. MPI disputed this interpretation, pointing out that those terms were but the last in a series of exchanges.
“[16] It is the position of the applicant that the governing document is not the Lease itself but rather the arbitration agreement, which was entered into by the parties at the request of the arbitrator. This is disputed by the respondent. As indicated above, following agreement of the parties as regards the arbitration, the issues to be arbitrated, the selection of the arbitrator and the issues to be bifurcated pursuant to the Ground Lease, and following the correspondence from Mr. Kaufman to the arbitrator, which referenced the arbitration provisions of the Lease and forwarded a copy of the Lease to the arbitrator, the arbitrator requested that the parties enter into his standard arbitration terms. The terms were signed on May 31, 2018, after the parties had added the issues to be determined”.
Brown J. disagreed with 547. Brown J. observed that the Lease was “silent as regards appeals” but noted that “although it provides that all awards are “final and binding””.
“[17] The arbitration terms are the standard terms of the arbitrator. They cover conflicts, terms of the contract as regards the arbitrator, his compensation, the services of an arbitral secretary, cancellation policy, confidentiality, immunity of the arbitrator and administration issues. There is no “entire agreement” clause. I am satisfied that the governing document as regards arbitration of the Lease provisions is the Lease itself and not the standard terms of the arbitrator’s agreement, which is intended to protect the arbitrator’s interests”.
Brown J. also disagreed with 547’s reliance on Denison Mines Ltd. v. Ontario Hydro, 2002 CanLII 20161 (ON CA), distinguishing it as “very different from the situation here”. Contrary to the facts before her, in that earlier case, “the parties themselves negotiated a new arbitration agreement and executed it prior to selection of the arbitrators”.
In Denison Mines Ltd. v. Ontario Hydro, two (2) parties had been bound by a sale agreement which contained an agreement to arbitrate. After one party initiated litigation against the other party to the sales agreement and a third party, all three (3) parties negotiated and entered into a written arbitration agreement staying the litigation and setting out the process for their tri-partite arbitration. That agreement made no express exclusion of an appeal. The Court of Appeal held that the agreement was a complete and comprehensive agreement. It was a free-standing agreement rather than an amendment to the sale agreement. As a result, the parties were eligible to apply for leave to appeal a question of law given that they had not excluded such a recourse in their post-litigation submission agreement.
Brown J. held that the terms signed by the parties did not eliminate their existing agreement on “final and binding” contained in the Lease.
“I am satisfied that the parties had initially contracted out of court proceedings as regards any disputes arising from the Lease in the terms of the Ground Lease. The original Ground Lease was made “final and binding”. The original terms of the ground lease were not changed, modified or replaced by the Arbitration Terms provided by the arbitrator and signed by the parties”.
urbitral note – First, the Court of Appeal in Denison Mines Ltd. v. Ontario Hydro identifies a non-exhaustive list of indicia which might have prompted a court to discern a different intention of the parties when signing post-dispute submission terms and thereby served to alter the role or status of the second document.
“[9] In my respectful view, the application judge erred in her interpretation and appreciation of the legal effect of the Arbitration Agreement. On its face, the Arbitration Agreement is unambiguous. It is a complete and comprehensive agreement providing for the arbitration of a dispute between the three contracting parties. If it were nothing more than an amendment to the Sale Agreement, one would expect to find some reference to that earlier document in the recitals or elsewhere in the text of the Arbitration Agreement. The recitals, however, refer only to Hydro’s action and the agreement of the parties to have that dispute settled by arbitration. The recitals provide that the dispute between the parties is to be referred to arbitration “on the terms set out below”. The “terms set out below” make no reference whatsoever to the terms of the Sale Agreement. Clause 6 explicitly distinguishes the tripartite arbitration to be conducted under its terms from “the previous arbitration between Denison and Hydro pur suant to the Notice of Arbitration delivered by Denison dated February 26, 1992”. While this refers to an earlier arbitration of another dispute between Denison and Hydro, it is significant that the only aspect of the Arbitration Agreement that even remotely refers to the Sale Agreement serves to distance it from the arbitration at issue here.
[10] The Arbitration Agreement deals comprehensively with the conduct of the arbitration. It sets out a different method of appointing the panel from that contemplated by the Sale Agreement. It provides for the terms of discovery, the jurisdiction of the panel to award costs and interest and even the method of setting down the time and place of the arbitration. In this respect as well, it bears all the hallmarks of a free-standing agreement rather than an amendment to the Sale Agreement.
[11] Perhaps even more significant is the fact that the parties to the Arbitration Agreement are different. As TD was not a party to the Sale Agreement, it is difficult to see how it could be held to the terms of that agreement precluding any right of appeal. It would surely be anomalous if one party to a tripartite agreement had the right to seek leave to appeal under s. 45(1) of the Act, but the other two parties did not”.
Second, Denison Mines Ltd. v. Ontario Hydro distinguished its facts from those in an earlier case in which the parties had adopted the term “final and binding” but did so before the new Arbitration Act had come into force.
“[16] In my view, this case is distinguishable from Labourers’ International Union of North America, Local 183 v. Carpenters and Allied Workers, Local 27 (1997), 1997 CanLII 1429 (ON CA), 34 O.R. (3d) 472, 97 C.L.L.C. 220-057 (C.A.). In that case, the parties had entered into an arbitration agreement before the date the Act came into force, but the arbitration itself took place after the operative date of the Act. The arbitration agreement provided that the arbitration would be “final and binding” and was otherwise silent as to appeals. The applicant argued that since the arbitration agreement was silent on the question of an appeal, it could have recourse to the new s. 45(1) and apply for leave to appeal. This court rejected that submission, finding that the arbitration agreement had to be interpreted in light of legal regime prevailing at the date it was written. When the parties entered the agreement, it was not necessary to exclude a right of appeal expressly. The words “final and binding” indicated an intention to exclude any right of appeal, and the parties could not be expected to have expressly contracted out of a legislative scheme that did not exist when they wrote the agreement. In the case at bar, the situation is different. The parties did turn their minds to the terms of the arbitration after the new Act came into effect. They entered a complete and comprehensive agreement that made no reference to the Sale Agreement or to rights of appeal. In these circumstances, the 1992 Act and the right to seek leave to appeal under s. 45(1) apply”.