In Maisonneuve v Clark, 2022 ONCA 113, the Ontario Court of Appeal interpreted the language of an arbitration agreement to determine the applicable limitation period. It found that the application judge’s interpretation of that language was entitled to deference and that the palpable and overriding error standard of review applied. The application judge found that the following language in the arbitration clause made an attempt at informal resolution a pre-requisite to arbitration: “[i]f the parties are unable to resolve the Excluded Issue as between them, then the Excluded Issue shall be fully and finally referred to the Arbitrator for resolution”. The application judge found that the word “then” made the clause “both temporal and conditional”, after considering the wording of the arbitration clause and the factual matrix. The Court of Appeal found no palpable and overriding error and dismissed the appeal. Maisonneuve’s application to appoint an arbitrator was not time-barred; he had brought his application within two years of the date when he knew that a negotiated resolution was not possible.
Maisonneuve and Clark were cousins, who were in business together as shareholders of various companies, including Eastern Ontario Real Estate Investors Inc. (“the Company”). Their relationship deteriorated and, in early 2016, they agreed to submit their disputes to arbitration.
In September 2016, they reached an agreement on all issues, save for one. As part of their agreement, Maisonneuve agreed to transfer all his shares in the Company to Clark; however, the parties could not agree upon who had the obligation to pay various expenses associated with the Company. Therefore, the parties signed a mutual release in the context of their overall settlement. It contained language that provided that, “[i]f the parties are unable to resolve the Excluded Issue as between them, then the Excluded Issue shall be fully and finally referred to the Arbitrator for resolution”.
In 2017, the parties became involved in litigation over the validity of the settlement agreement as a whole.
In January 2018, during settlement discussions, Clark’s lawyer took the position that there would be no negotiations over the Excluded Issue, the expenses of the Corporation.
In June 2019, Maisonneuve’s lawyer wrote to Clark’s lawyer to initiate the arbitration process provided for in the 2016 mutual release. Clark refused the request to arbitrate on the basis that it was time-barred.
In September 2019, Maisonneuve brought an application to the Ontario Superior Court of Justice to appoint an arbitrator. Clark opposed the application on the basis that it was time-barred for two reasons: (1) the parties had agreed that the submission to arbitration would occur within 90 days of the signing of the settlement agreement in September 2016; or, in the alternative, (2) the two-year basic limitation period in s. 4 of the Limitations Act 2002, S.O. 2002, c. 24, Sched. B, applied and that Maisonneuve was required to have commenced the arbitration within two years of the date when the parties signed the settlement agreement, as a result of which the limitation period expired in September 2018.
The decision of the application judge -The application judge found that: (1) there was no agreement between the parties to commence any arbitration within 90 days of the settlement agreement; and (2) the arbitration was not barred by the two-year limitation period because of s. 5(1)(a)(iv) of the Act. Section 4 provides a basic two-year limitation period: “Unless this Act provides otherwise, a proceeding shall not be commenced in respect of a claim after the second anniversary of the day on which the claim was discovered”. Section 5(1)(a)(iv) provides that, “[a] claim is discovered on the earlier of,
(a) the day on which the person with the claim first knew,
(i) injury, loss or damage had occurred,
(ii) that the injury, loss or damage was caused by or contributed to by an act or omission,
(iii) that the act or omission was that of the person against whom the claim is made, and
(iv) that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it; and
(b) the day on which a reasonable person with the abilities and in the circumstances of the person with the claim first ought to have known of the matters referred to in clause (a).”
In this case, the application judge found that it was not evident that the arbitration was an “appropriate” means to seek a remedy under s. 5(a)(2)(iv) until it was clear that the dispute could not be resolved by way of negotiation. That did not occur until January 2018, at which time Maisonneuve should have known that a negotiated settlement was not possible because Clark’s lawyer said that there would be no negotiations on the expenses issue.
An attempt at informal resolution was a prerequisite to arbitration because of the language of the arbitration clause. It stated that “[i]f the parties are unable to resolve the Excluded Issue as between them, then the Excluded Issue shall be fully and finally referred to the Arbitrator for resolution”. The application judge found that the word “then” made the clause “both temporal and conditional”, after considering the wording of the arbitration clause and the context of the negotiations leading up to the September 2016, settlement. Maisonneuve brought the application to appoint an arbitrator in September 2019, less than two years after it was clear that negotiations would not succeed and that arbitration was an “appropriate” means to seek a remedy. Therefore, Maisonneuve’s application was not time-barred.
The decision of the Court of Appeal – Clark appealed. The issue on appeal was whether the limitation period started to run in January 2018 (when the application judge found that Maisonneuve should have known that negotiations would fail), or in September 2016 (when the parties signed the settlement agreement). This issue turned on the application judge’s interpretation of the arbitration agreement, which the Court of Appeal found was entitled to deference and that the palpable and overriding error standard of review applied. The Court dismissed the appeal for the following reasons.
First, The Court found that the application judge made no palpable and overriding error in reaching her conclusion on the interpretation to be given to the arbitration clause.
Second, Clark challenged the factual findings made by the application judge. He claimed that the application judge erred in finding that it was not clear at the time of the September 2016, settlement agreement that the parties would not, in fact, participate in any further negotiations over the Company’s expenses. Clark wanted the Court to review and reweigh the evidence considered by the application judge. That evidence was the correspondence between counsel for the parties leading up to the September 2016, settlement agreement, which the application judge found reflected an “evolution” in Maisonneuve’s position on this issue – from refusing to discuss the Company’s expense claim to agreeing in the 2016 settlement agreement that the parties would try to resolve the claim before arbitration to refusing to discuss settlement of this issue in January 2018. The Court of Appeal refused to reconsider this evidence and found that the application judge had made no palpable or overriding error.
Third, Clark asserted that the application judge erred in relying upon previous cases in which it was held that the limitation period that applies to an arbitration clause may not start to run until the parties have exhausted attempts at informal resolution. [PQ Licensing S.A. v. LPQ Central Canada Inc., 2018 ONCA 331, and L-3 Communication SPAR Aerospace Limited v. CAE Inc., 2010 ONSC 7133]. Clark asserted that the arbitration clauses in those cases were different and the pre-conditions for enforcement were much clearer than in this case. The Court found that while this might be true, it did not detract from its conclusion that the application judge made no palpable and overriding error in her interpretation of the arbitration clause as including a precondition to arbitration.
Finally, Clark argued that the application judge’s decision would lead to uncertainty with respect to the application of limitation periods because it will be difficult to ascertain when negotiations are at an end and the limitation period starts to run. The Court rejected this argument – the application judge’s decision was based upon the specific wording of the arbitration clause and the circumstances of this case.
First, this case is a great example of the difficulties an appellant faces in challenging a lower court’s interpretation of a contract, in this case the arbitration clause, which is clearly a question of mixed fact and law. (See Sattva Capital Corp. v Creston Moly Corp, 2014 SCC 53, para. 50.) The Court of Appeal found that in reaching her conclusion about the meaning of the language in the arbitration clause, the application judge, “relied on the wording of the arbitration clause and the context of the negotiations leading up to the September 2016 settlement” (at para. 7).
Second, it is a reminder to parties and to counsel drafting an arbitration clause that once the parties are in a dispute, the interpretation of the arbitration clause may itself become contentious. Clarity of language is essential. Good precedents for stepped arbitration clauses may be found in the draft clauses prepared by arbitral institutions. There are numerous resources available online. For example:
- the ICC model stepped arbitration clause in the ICC Mediation Rules
- the ADR Chambers Multi-Step Resolution clause
- the AAA/ICDR has an online arbitration Clause Builder Tool