Ontario – tests for adequacy of reasons and for remitting awards considered and applied – #245

Mr. Justice David L. Edwards in Wang v. Takhar, 2019 ONSC 5535 determined that an agreement to arbitrate, contained in a more recent contract, applied to the parties’ relationship established prior to that contract and did not eliminate appeals on questions of law.  The challenged award lacked adequate reasons on only a single issue and, applying the principles for remitting awards, Edwards J. remitted the issue back to the arbitrator with specific questions as well as authority to re-open the evidence if need be. 

In his follow up decision on costs in Wang v. Takhar, 2019 ONSC 6237, and after having considered the parties’ submissions, Edwards J. ordered no costs.  Appellant was successful but only on a single issue narrower than the appeal framed initially and Respondent was successful in having the issue remitted back to the arbitrator.

Two (2) practising doctors, Dr. Baldeep Takhar and Dr. Jodie Wang, agreed in November 2011 to practice together at a new clinic (“the Franklin”).  They had exchanged a draft contract for that initial location (“Draft Franklin Agreement”) but never executed it.  Further clinic locations were opened and Dr. Takhar and Dr. Wang eventually signed a subsequent agreement (“Kent Dispute Resolution Agreement”). See paras 28-33.

As part of their arrangements, Dr. Wang undertook to pay Dr. Takhar 25% of all of Dr. Wang’s gross billings as payment of Dr. Wang’s share of the overhead rather than a direct contribution towards the actual operating expenses.  By agreement, Dr. Takhar supervised financial aspects of their business arrangement.   Dr. Takhar would deduct that 25% from Dr. Wang’s billings and she would remit the net to Dr. Wang.

During their business relationship, Dr. Takhar increased the 25% to 30%. After further clinic locations opened, at some point, Dr. Takhar began to deduct 40% of Dr. Wang’s gross billings as well as an equal share of additional staff hired following an investigation by the College of Physicians and Surgeons of Ontario (clinic and staff expenses, together, “Special Expenses”).

Disagreements arose and the parties arbitrated.  A key issue in the dispute involved whether Dr. Wang consented to the percentage deducted and the deductions for Special Expenses.  The arbitration resulted in an award which (i) concluded that increases over 25% were not enforceable and (ii) ordered Dr. Takhar to pay Dr. Wang an amount representing overheard expense or charges over and above the original 25% (“Award”).

For the relevant period, Dr. Wang’s gross billings were $3,904,031.00 from which the arbitrator deducted the amounts Dr. Takhar had already paid Dr. Wang and the original 25% of the gross, plus HST, leaving $763,560.00.

The issue in appeal involved the section of the Award entitled “Is Dr. T’s decision to increase Dr. W’s expense contribution from 25% to 30% enforceable?”  If the issue in that section involved an increase of 25% to 30%, then the arbitrator’s calculation ought to have focused on 5%.  If it had focused on 5% of the $3,904,031.00 gross billings, that would represent $195,201.55 and not $763,560.00.  Dr. Takhar’s appeal involved Dr. Wang’s entitlement to the balance, $568,358.45 ($763,560.00 minus $195,201.55).

Dr. Takhar applied for leave to appeal under Ontario’s Arbitration Act, 1991, SO 1991, c 17;.  Dr. Wang resisted, arguing that the parties had stipulated that their Award would be final and binding.

Edwards J. identified the following four (4) issues raised in the appeal:

(i) had the parties contracted out of the Arbitration Act;

(ii) if the parties had not contracted out of the Arbitration Act, should leave to appeal be granted;

(iii) if leave to appeal should be granted, should the appeal be granted; and,

(iv) if the appeal is granted, what is the remedy?

Following his consideration of each issue, Edwards J. (a) determined that the parties had agreed to incorporate the right of appeal set out in section 45 of the Arbitration Act, (b) granted leave to appeal and the appeal, (c) varied the award as per paras 102-103 of his reasons and (d) remitted an issue back to the arbitrator.

(i) Contracting out – paras 26-40

The Draft Franklin Agreement and the Kent Dispute Resolution Agreement each contained similar arbitration provisions. The reasons focus on the wording of the signed Kent Dispute Resolution Agreement which dealt with arbitration at section 4. 

Section 4(c) stated “[t]he award will be final and binding upon the parties and on all of the issues submitted to arbitration.

Section 4(d) stated “[t]he award is subject to appeal under section 45 and maybe set aside under section 46 of the Arbitration Act, 1991…

Dr. Wang interpreted the sections to mean that the parties agreed that an award is final and binding and only an excess of jurisdiction entitled a party to appeal.  Dr. Takhar argued that the Kent Dispute Resolution Agreement, as the last and only signed agreement, superseded any earlier agreements and should be interpreted to mean that the parties contracted into section 45.

Edwards J. noted that there is no inherent right to appeal an arbitral award and that any such right must come from legislation or the parties’ agreement.  See Highbury Estates Inc. v. Bre-Ex Limited, 2015 ONSC 4966.  Edwards J. further determined that the signed and last document bound the parties and “set the parameters” for their arbitration.

He also referred to 6524443 Canada Inc. v. Toronto (City), 2017 ONCA 486 in which the Court of Appeal held that the arbitration agreement entered into by the parties prior to arbitration superseded the arbitration clause in the previously executed lease regarding which the parties had a dispute. “The court stated that there was no reason to conclude that after signing a comprehensive arbitration agreement that the parties intended that conflicting terms from the previously executed lease were to prevail over the more recently executed arbitration agreement.

Edwards J.’s reading of sections 4(c) and 4(d) of the Kent Dispute Resolution Agreement supported his interpretation that 4(d) modified 4(c) and provided the parties a right of appeal under section 45 of the Arbitration Act.  Because section 46 dealt with excess of jurisdiction, Edwards J. rejected Dr. Wang’s argument that section 4(d) only dealt with excess of jurisdiction. “Clearly, s.46 of the Act deals with that situation and is available to all parties to an arbitration, regardless of the terms of their arbitration.

(ii) Should leave to appeal be granted – paras 41-51

The parties agreed with the three (3) part test applicable under section 45.

a.   It must be on a question of law;

b.   The importance to the parties of the matters at stake in arbitration must justify an appeal; and,

c.   The determination of the question of law issue must significantly affect the rights of the parties.

Dr. Wang conceded that the amount in dispute was important to the parties and justified an appeal but submitted that Dr. Takhar did not raise a question of law. Even if it were a question of law, Dr. Wang argued that its determination would not significantly affect their rights.  Dr. Takhar argued that the reasons in the Award prevented a meaningful review in appeal and thereby constituted an error of law.

Edwards J. referred to Murphy v. Murphy, 2013 ONSC 7015, citing para. 37 from that decision and concluded that the adequacy of reasons is a question of law.  The reasons Murphy v. Murphy also include insights when Mr. Justice Paul M. Perell elaborated on the nature of adequate reasons and merit inclusion here.

[37] It is an error in law for a judge or tribunal member to fail to provide an explanation of his or her decision that is sufficiently intelligible to permit appellate review: R. v. Sheppard, 2002 SCC 26 (CanLII), [2002] 1 S.C.R. 869; Law  Society   of  Upper  Canada  v.  Neinstein, 2010 ONCA 193 (CanLII) at para. 61.

[38] The adequacy of reasons for decision is determined having regard to their functions, which are: to inform the parties of the decision; provide public accountability; and permit meaningful appeal or judicial review: R. v. R.E.M., 2008 SCC 51 (CanLII), [2008] 3 S.C.R. 3 at para. 25. In R. v. R.E.M., at para. 17, the Supreme Court explained that the judge should tell the parties what he or she decided and they explain why but not necessarily how that decision was reached. The question about the adequacy of reasons is whether the reasons, viewed in light of the record and counsel’s submissions on the live issues presented by the case, explain why the decision was reached, by establishing a logical connection between the evidence and the law on the one hand, and the decision on the other: R. v. R.E.M., at para. 41. The reasons for decision must be sufficient to enable the parties and the reviewing court to determine whether there are grounds of appeal: Northwestern Utilities Ltd. v. Edmonton (City), 1978 CanLII 17 (SCC), [1979] 1 S.C.R. 684 at pp. 705-797; Gray v. Ontario (Disability Support Program, Director) (2002), 2002 CanLII 7805 (ON CA), 59 O.R. (3d) 364 (C.A.).

[39] Reasons are adequate if they are responsive to the case’s live issues and the parties’ key arguments. Their sufficiency is measured not in the abstract, but as they respond to the substance of what was in issue: R. v. R.E.M., supra at para. 34; R. v. Walker, 2008 SCC 34 (CanLII), [2008] 2 S.C.R. 245 at para. 20. Adequate reasons will communicate the findings of fact upon which the court or tribunal based its decision, the court’s or tribunal’s conclusion, and the reasoning process that led to the conclusion. A reviewing court, however, does not have the power to intervene simply because it thinks the trial court did a poor job of expressing itself: R. v. Sheppard, supra at para. 26.

[40] Where a case turns on the application of well-settled legal principles to facts as found after a consideration of conflicting evidence, the judge is not required to expound upon those legal principles to demonstrate to the parties or to the reviewing court that he or she was aware of and applied those principles: R. v. Morrissey (1995), 1995 CanLII 3498 (ON CA), 22 O.R. (3d) 514 (C.A.) at p. 525.

(Note: in Murphy v. Murphy, Perell J. applied those insights to determine whether portions of the arbitrator’s reasons are adequate or not.)

As paraphrased at para. 48 of the reasons, Edwards J. agreed with Dr. Takhar that the Award lacked sufficient reasons to explain why the amount awarded did not correspond with the heading of the section in which the arbitrator dealt with the claim.  Dr. Takhar argued that, having decided to determine whether the increase of 5% from 25% to 30% was justified, the arbitrator failed to explain why he then awarded more than 5%?  A gap of 5% represented $195,201.55 but the Award ordered payment of an additional $568,358.45.

Edwards J. determined that Dr. Takhar’s appeal raised a question of law of importance to the parties and justified an appeal.

(iii) Should the appeal be granted – paras 52-73

Both parties disputed whether the Award provided adequate reasons.  At paras 57-60, Edwards J. reviewed the guidance provided by the Supreme Court of Canada and the Ontario Court of Appeal on adequacy of reasons.

– adequacy of reasons is not a standalone basis for quashing a decision;

– the reasons should be read together with the outcome and meet the purpose of showing whether the result falls within the range of possible outcomes;  

– providing no reasons is a breach of natural justice but providing some reasons triggers a review on a reasonableness standard;

– reasons should permit meaningful appellate review by justifying and explaining the results, informing a party which it lost, enabling a party to consider whether to appeal and enabling the public to determine whether justice has been done;

– reasons do not have to readily reveal on their face the “what” and the “why” provided that, read in their context, such answers are revealed.

See Gholami v. The Hospital of Sick Children, 2018 ONCA 783, paras 63-64. Referring to King’s Bay Development Corp. v. Cornerstone Custom Homes Ltd, 2009 ONCA 611, Edwards J. added that “reasons are sufficient if they show why the judge arrived at the decision and that it is not necessary for the reasons to demonstrate how the judge reached a decision”.

Having determined that the standard of review is reasonableness, Edwards J. undertook an analysis of the actual record presented to him.  There was no transcript created. The record was comprised of the exhibits filed by the parties. In his analysis, Edwards J. identified alternative ways in which the arbitrator may have addressed the “live issue” of sharing the Special Expenses but, in having to identify those alternatives, answered his question. 

Edwards J. determined that “reasons are sufficient if they show why the judge arrived at the decision and that it is not necessary for the reasons to demonstrate how the judge reached a decision”.  The reasons in the Award disclosed no express findings of fact on the live issue and fell short of the standard required.  On the record available to him, Edwards J. concluded that the reasons were not adequate because Dr. Takhar was unable to determine why the order for payment in that amount was made against her.

(iv) Appropriate remedy – paras 74-100

Edwards J. considered his options under the Arbitration Act. Those options included requiring the arbitrator to explain any matter, varying or setting aside the challenged award or remitting it back to the arbitrator with his opinion on the question of law and/or giving directions about the conduct of the arbitration.

Edwards J. considered that the arbitrator had combined two (2) issues into one: (a) the issue of whether the deduction from gross billings should be 25% or 30%; and (b) the responsibility for Special Expenses.

The record contained sufficient findings of fact to decide Dr. Wang’s entitlement to reimbursement of the 5% between 25% and 30% but not enough to decide if and how to vary the Award on the Special Expenses.  Based on the record before him, Edwards J. determined that he as a judge sitting in appeal could issue an order for (a) but had to remit the matter back to the arbitrator for (b).

Relying on the principles stated in Victoria University (Board of Regents) v. GE Canada Real, 2016 ONCA 646 para. 143, Newfoundland and Labrador Association of Public and Private Employees v. Newfoundland and Labrador, 2007 NLCA 48 para. 54 and Economical Mutual Insurance Company v. Great West Casualty Company, 2010 ONSC 7208 para. 35, Edwards J. determined that referring the matter back to the arbitrator was the best solution.

Doing so was the most efficient and cost-effective way to decide the single issue and the arbitrator had confirmed his willingness to do so.  The referral back was not justified by allegations of impropriety or denial of natural justice.  Edwards J. was specific in his expectations for the referral back and pre-empted possible confusion.

[94] The sole deficiency is that his reasons were inadequate on the one issue.

[95] As well, should the matter be remitted to the original arbitrator, he is not being asked to reconsider an issue upon which he has already made findings.  Rather, he is being asked to make findings upon matters not reflected in his reasons.

[96] I find that there is no need to relitigate the issue.   What is needed is for the arbitrator to make findings of fact based upon the evidence that he heard.

[97] This is not, and should not be, an opportunity for either party for a “do-over”.

The issue of what to do with the deductions against gross billings which exceeded 30% representing $568,358.45 was remitted back to the arbitrator with specific questions identified at para. 99 of the reasons.

Edwards J. also pre-empted any uncertainty about the jurisdiction of the arbitrator when he expressly left it open to the arbitrator to require new evidence should he conclude he needed it.

urbitral note –The reasons consolidate, refresh and apply the rules applicable to determining if reasons are adequate and the terms on which a court can remit an award back to the arbitrator whose award has been successfully challenged, albeit only in part.

The references noted above are to key passages applicable in arbitration and should be read for further reasons assisting the determine adequacy of reasons and the appropriateness of remitting awards. 

The ensuing costs award serves as further insights into a court’s appreciation of divided results on an appeal.