Ontario – summary judgment motion opportunity for arbitrator to determine issues in favour of respondent – #227

In Canada Bread v. Mallot Creek, 2019 ONSC 2578, Madam Justice Bernadette Dietrich upheld an arbitrator’s decision to dismiss one party’s motion for summary judgment but then also make a final determination of a key issue in favour of the other party.  Dietrich J. determined that, if the sufficiency of the record permits the arbitrator to decide the motion, it is “axiomatic” that the arbitrator resolve the issue raised by the motion in favour of either party.  The parties selected the mediator to serve as arbitrator for their settlement agreement should a dispute arise in the interpretation of the settlement.

Canada Bread Company Limited (“Canada Bread”) and First Gulf Developments Design Build Inc. (“First Gulf”) signed a December 1, 2009 design-build contract for the construction of industrial bakery premises (“Contract”).

Soon after the bakery went into production in June 2011, First Gulf instituted litigation for alleged non-payment of monies owing and Canada Bread countered with its own claim for alleged damages stemming from negligent performance of the design and construction obligations under the Contract (“First Action”).

After more than two (2) years of litigation, First Gulf and Canada Bread agreed to mediate their disputes.  After a couple of mediation sessions held February 25 and April 2, 2015, the parties signed an April 2, 2015 agreement (“Minutes of Settlement”) and executed a Release July 15, 2015.  First Gulf’s and Canada Bread’s respective actions were dismissed on consent.  The full terms of the Release appear at paras 31-32 of Dietrich J.’s reasons.

On November 24, 2014, just months before the February and April 2015 mediation sessions, a fire at the bakery lead to extensive damage.  Despite each party and the mediator being aware of this fire and the damage, no one alleged that First Gulf was liable.

In the Minutes of Settlement, the parties agreed to submit any dispute arising out of the interpretation and/or legal obligations created by it to arbitration conducted before the mediator with whom they had come to their settlement.

On June 28, 2016 Canada Bread commenced a second action against First Gulf alleging negligence and breach of the Contract (“Second Action”).  Canada Bread alleged negligent design by First Gulf and, among other things, First Gulf’s failure to install and/or implement certain aspects of the electrical system and non-compliance with generally accepted practices.   None of Canada Bread’s allegations were specifically pleaded in the First Action.

A first investigation, conducted by Canada Branch’s insurer and completed December 12, 2014, did not suggest liability for First Gulf.  Canada Branch as insured received a copy of the first report. A second report, conducted by a second forensic engineering firm and dated February 9, 2015, did contain an allegation of negligence against First Gulf.  The information in the second report was not communicated to Canada Branch until after signature of the Minutes of Settlement and Release.  A third report, dated August 5, 2015, prepared by the second firm, set out the essence of the claims made in the Second Action.

First Gulf applied to the arbitrator for summary judgment to have the Second Action dismissed.  By final award, the arbitrator dismissed First Gulf’s motion and allowed the Second Action to proceed (“Award”).  The arbitrator also issued a costs award.

First Gulf applied for leave to appeal both the Award and the costs award under section 45(1) of Ontario’s Arbitration Act, 1991, SO 1991, c 17.  First Gulf alleged the following errors in law:

[13] The Appellants submit that the arbitrator made the following errors in law:

(1) he determined that the Release did not bar the second action;

(2) he failed to interpret the Release as a whole and to ascribe meaning to words used by the parties in the Release, and to interpret the general release language;

(3) he failed to identify any causes of action asserted in the second action that were different than those alleged in the first action;

(4) he failed to treat the identity, interests and knowledge of Canada Bread as co-extensive with those of its insurer; and

(5) he found that there was a genuine issue for trial but then decided the issue and dismissed the Appellants’ motion for summary judgment.

Given that the parties’ agreement to arbitrate did not deal with appeals on a question of law, section 45(1) authorized Dietrich J. to grant leave on such questions if she was satisfied that: (i) the importance to the parties of the matters at stake in the arbitration justified an appeal; and, (ii) determination of the question of law at issue would significantly affect the rights of the parties.

Canada Bread contested First Gulf’s application for leave to appeal.  It argued that First Gulf’s appeal raised questions of mixed fact and law from which no appeal lay.  It further argued that interpretation of the Release was a question of mixed fact and law, relying of Sattva Capital Corp. v. Creston Moly Corp., [2014] 2 SCR 633, 2014 SCC 53, para. 50. 

Contractual interpretation involves issues of mixed fact and law as it is an exercise in which the principles of contractual interpretation are applied to the words of the written contract, considered in light of the factual matrix.

Dietrich J. read past para. 50 and considered the Supreme Court’s reasoning at para. 51, excerpting the following in her own reasons:

One central purpose of drawing a distinction between questions of law and those of mixed fact and law is to limit the intervention of appellate courts to cases where the results can be expected to have an impact beyond the parties to the particular dispute. It reflects the role of courts of appeal in ensuring the consistency of the law, rather than in providing a new forum for parties to continue their private litigation.

Her reading of Sattva Capital Corp. v. Creston Moly Corp. lead her to identify “a key difference” between questions of law and questions of mixed fact and law.

In other words, a key difference between the two questions is that there is a “degree of generality” or some “precedential value” to the former, which is not found in the latter, as identified in Canada (Director of Investigation and Research) v. Southam Inc., 1997 CanLII 385 (SCC), [1997] 1 S.C.R. 748. Further, in the same decision, at para. 37, it is suggested that the court ought to assess whether the dispute is over a general proposition that might qualify as a principle of law or over a very particular set of circumstances that is not apt to be of much interest to judges and lawyers in the future.

On her reading of the facts, Dietrich J. concluded that, among the alleged errors raised by First Gulf, some “have a measure of generality such that they have an impact beyond the immediate parties” and also qualified as questions of law.  Others, such as the interpretation of the Release, were questions of fact or mixed fact and law in regard to which she saw no extricable question of law.  For those questions which did qualify as questions of law, she listed them as follows:

(a) the failure to find that the Release operated as a bar to the Second Action;

(b) the failure to treat the identity, interests and knowledge of Canada Bread as co-extensive with its insurer; and,

(c) the finding that there was a genuine issue for trial followed immediately by deciding the issue and dismissing First Gulf’s motion for summary judgment.

Dietrich J. also considered that the three (3) questions were both important to the parties and their determination would significantly affect the parties’ rights.  Should First Gulf prevail on the appeal, it would avoid incurring the expense of a trial on the Second Action.  Should Canada Bread prevail, it would preserve its right to pursue the Second Action and, if successful, recover some measure of compensatory damages.

For the standard of review, First Gulf argued that the standard of review is correctness whereas Canada Bread argued that it was reasonableness.

First Gulf argued that the appeal involved the proper application of general legal principles to the interpretation of a “standard” release and the enforceability and concomitant effect of that release on the cause of action to which it relates.  Such issues, it argued, are of “great importance to the legal system and are outside any specialized expertise of the arbitrator”. First Gulf argued that the arbitrator was not sought out as having a specialized expertise in interpreting releases, his jurisdiction arising “out of a contractual arrangement between the parties that required them to revert to him to arbitrate any dispute over the interpretation of and/or the legal obligations created by the Minutes of Settlement”.

Canada Bread responded that the matter fell within the context of a commercial arbitration which attracted a standard of reasonableness.  The Release was not a “standard” release but “one specifically crafted to deal with particular facts and issues in dispute that are unique to the parties”.  In addition, the parties had specifically chosen the arbitrator and the interpretation of the Release was well-within his expertise.

Dietrich J. held that the applicable standard was reasonableness.  Relying on Sattva Capital Corp. v. Creston Moly Corp., she noted that reasonableness “will almost always apply to commercial arbitrations” and, as instructed by Teal Cedar Products Ltd. v. British Columbia, [2017] 1 SCR 688, 2017 SCC 32, serves the paramount policy objectives of commercial arbitration, efficiency and finality.

Dietrich J. disagreed with First Gulf, holding that the Release was customized by the parties to suit their purpose and was thus not an issue of great importance to the legal system.

Dietrich J. also reminded that Sattva Capital Corp. v. Creston Moly Corp. para. 105 had stated that the expertise of the arbitrator is presumed.  In addition, she further noted that Teal Cedar Products Ltd. v. British Columbia had later stated that such expertise should be presumed where the arbitration is voluntary and the parties chose the arbitrator as opposed to when arbitration and the arbitrator are statutorily imposed.

I am also not persuaded that the arbitrator was outside of his area of expertise in interpreting the Release and hearing the summary judgment motion concerning the effect of the Release on the second action. The arbitrator was selected by the parties, following the mediation conducted by him, to adjudicate disputes concerning the interpretation of and/or the legal obligations created by the Minutes of Settlement. There is no evidence before the court of any lack of relevant expertise in the arbitrator.

Dietrich J. then noted that First Gulf bore the burden on demonstrating that the award was unreasonable.  See 1353837 Ontario Inc. v. City of Stratford (Corporation), 2018 ONSC 71 paras 20-25.

An arbitrator’s decision is reasonable if it falls within a range of outcomes where are defensible in fact and in law.  See Intact Insurance Company v. Allstate Insurance Company of Canada, 2016 ONCA 609 para. 63.  The fact that the court might have preferred an alternative interpretation does not render the initial decision unreasonable.  See Newfoundland and Labrador Nurses’ Union v. Newfoundland and Labrador (Treasury Board), [2011] 3 SCR 708, 2011 SCC 62 paras 15-18.

Dietrich J. considered each of the three (3) questions of law in light of the standard of reasonableness:

(a) determination that the Release did not bar the second action – paras 30-56 – The analysis for (a) covers most of the reasons and provides readers with varying insights into the specific wording in the particular clause.  The analysis can assist readers charged with drafting the wording in their own releases but, as the analysis showed, the clause applied to its own particular facts and was not a standard clause.

(b) not treating the identity, interests and knowledge of Canada Bread as co-extensive with those of its insurer – paras 57-60 – The analysis for (b) overlaps that of (a) and is fact-specific, lending itself to a universal rule or approach.

(c) genuine issue for trial but deciding the issue and dismiss motion for summary judgment – paras 61-66 – The analysis for (c) is of particular interest in commercial arbitration. 

First Gulf objected to the arbitrator finding that there was a genuine issue for trial but then deciding a key issue in favour of Canada Bread, namely that the fire did occur after the First Action.

Referring to King Lofts Toronto I Ltd. v. Emmons, 2014 ONCA 215, Dietrich J. determined that, after having dismissed First Gulf’s motion, it remained open to the arbitrator to find in Canada Bread’s favour even if Canada Bread did not file its own motion.  The parties had submitted a comprehensive record and did not cross-examine of Canada Bread’s affidavits.  Dietrich J. held that, having approached the hearing on its motion for summary judgment, First Gulf “considered the record sufficient for the issues to be able to be determined”. Following the example set by Kassburg v. Sun Life Assurance Company of Canada, 2014 ONCA 922, Dietrich J. held that it was open to the arbitrator on  a summary judgment motion to determine a key issue on a final basis as doing so was in the interests of justice.

[66] I find that the arbitrator did not err in dismissing the Appellants’ motion for summary judgment. He did not exceed his jurisdiction by not sending the case to trial as argued by the Appellants. On a summary judgment motion, the Appellants are required to lead trump and put their best foot forward, which includes supplying a complete record relating to the issues at hand. If the sufficiency of the record permits the arbitrator to resolve the issue, using the tools available to him pursuant to the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, it is axiomatic that the issues should be resolved, whether in favour of the moving party or the responding party. The arbitrator’s determination of the issues on the motion for summary judgment is in line with the principle of proportionality in the application of rule 20 of the Rules of Civil Procedure.

urbital note – The result supports an arbitrator’s ability to resolve disputes on summary applications, provided that parties proceed to the hearing with a sufficient, comprehensive record.  By applying for summary judgment and proceeding on a record acceptable to it, an unsuccessful applicant ought to be prepared for a result in which it not only fails in its motion but also prompts a final determination of a key issue without application by the responding party.