P.E.I. – arbitral institution denied opportunity to contribute on key issues raised by challenge to award – #243

In HZPC Americas v. Skye View Farms & Ano, 2019 PECA 25, the P.E.I. Court of Appeal upheld a motions judge’s discretionary decision denying an arbitral institution leave to intervene in a challenge to an award.  Limiting its review to whether the decision was reasonable on those grounds raised in appeal, the Court did not itself express its own view of key issues which had prompted the arbitral institution’s involvement. For more background on the parties involved and issues in first instance, see the Arbitration Matters note “Arbitral institution denied leave to intervene in jurisdiction-based challenge to arbitral award”.

The decision involved an appeal by the Fruit and Vegetable Dispute Resolution Corporation (“DRC”), a non-profit Ottawa-based corporation created in 1999 under a provision of the North American Free Trade Agreement which provided for the creation of private commercial dispute resolution organizations for agricultural goods.

The P.E.I. Potato Marketing Board (“Marketing Board”) requires those engaged in dealing in, brokering or exporting table stock or seed potatoes to have the appropriate licenses.  A pre-requisite to obtaining the necessary license requires that the license applicant be a member of the DRC. 

Skye View Farms Ltd. (“Skye View”) grows and exports potatoes. HZPC Americas Corp. (“HZPC”) brokers the sale of potatoes but only seed potatoes and never table stock.  HZPC and Skye View are members of DRC and bound by DRC’s membership contract.

A dispute arose between HZPC and Skye View regarding their business dealings.  They undertook arbitration according to their obligation to do so under their DRC membership rules.  HZPC and Skye View nominated an arbitrator and participated in a hearing conducted in P.E.I.  The arbitrator issued an award ordering HZPC to pay Skye View (“Award”). 

Unsatisfied with the Award, HZPC applied under P.E.I.’s Arbitration Act, RSPEI 1988, c A-16 (“P.E.I. Arbitration Act”) to challenge the Award.  Among the grounds raised was that HZPC argued that the arbitrator had no jurisdiction to resolve a dispute involving a type of potato not covered by the definition of “fruits and vegetables” under DRC’s rules.

HZPC’s litigation in P.E.I. raised concerns for the DRC as the institution which administered arbitration under the DRC rules. DRC initiated its own litigation in P.E.I. seeking a determination that:

(i) HZPC is bound by the terms of the DRC membership contract,

(ii) the Ontario’s Arbitration Act, 1991, SO 1991, c 17 (“Ontario Arbitration Act”) and/or its International Commercial Arbitration Act, 2017, SO 2017, c 2, Sch 5 applied (“Ontario ICAA”) governs the arbitral process pursuant to the DRC membership contract; and,

(iii) Ontario’s Arbitration Act governs the arbitral “process”.

Further to case management, DRC applied under P.E.I.’s Supreme Court’s Rules of Civil Procedure Rule 13.01 “Intervention” for leave to intervene in litigation filed by HZPC and for consolidation under Rule 5 “Joinder of Claim and Parties”. DRC argued that HZPC breached its membership contract by:

(i) proceeding pursuant to P.E.I.’s Arbitration Act and not Ontario’s Arbitration Act as stipulated in the membership contract; and,

(ii) challenging the arbitrator’s jurisdiction to hear disputes concerning the type of potato HZPC and Skye View traded in by their contract.

The motions judge in HZPC Americas v. Skye View Farms & ano., 2018 PESC 47 denied DRC leave to intervene.  The motions judge determined that an arbitral institution would not contribute anything useful to an appeal arguing an excess of jurisdiction of the institution’s arbitration rules. The institution’s concern for the precedential value of the appeal did not justify it being added to the appeal as the arguments it could make could be made by either of the existing parties. The institution’s claim to have a global outlook of the potential adverse impact of an “unfavourable” result was insufficient to grant the institution leave to intervene. 

On appeal, raised four (4) grounds of appeal.  DRC argued that the motions judge erred by:

(1) too narrowly interpreting the lis and failing to appreciate that the lis included not only the purchase and sale contract between HZPC and Skye View but also the membership contract between HZPC and DRC;

 (2) failing to properly consider Rule 13.01(a) and failing to find that DRC had an interest in the subject matter of the proceeding;

 (3) failing to properly consider Rule 13.01(b) and failing to find that DRC would be adversely affected by the judgment in the proceeding; and,

 (4)  failing to properly consider Rule 13.01(c) and Rule 6.01(1) and failing to find that DRC’s application for a declaration and HZPC’s application for review of the arbitrator’s decision had a question of law and fact in common and/or failing to find that the relief claimed in both applications arose from the same series of transactions or occurrences.

Fresh evidence – The P.E.I. Court of Appeal denied an application by HZPC to adduce fresh evidence comprising post-hearing correspondence between the parties and between counsel as well as additional court materials filed in P.E.I. and Ontario.  Applying Palmer v. The Queen, [1980] 1 SCR 759, 1979 CanLII 8 (SCC), R. v. Lacasse, [2015] 3 SCR 1089, 2015 SCC 64, para. 115, Ayangma v. Eastern School Board, 2010 PECA 2, para. 18 and R. v. Ayangma, 2016 PECA 6, para. 8, the Court held that the proposed evidence was irrelevant and could not reasonably be expected to have affected the result.  See the criteria listed at para. 14 and the Court’s application of it to the facts at paras 15-19.

Applying standard of reasonableness – Following the standard identified in Vail & McIver v. WCB(PEI) & AG(PEI), 2011 PECA 17 and Jay v. DHL, 2009 PECA 2, para. 25, the Court applied the standard of reasonableness to the decision to grant or deny leave to intervene because of its discretionary nature. 

The Court addressed DRC’s four (4) grounds (see above), grouping 1 and 2 together and treating 3 and 4 separately.

Issues (1) and (2) – paras 21-38 – HZPC agreed with the DRC that the membership contract bound HZPC.  It argued, though, that the award should be overturned because the arbitrator did not follow the rules in the membership contract.  HZPC had two (2) arguments:

(i) the DRC rules allowed the parties to “agree otherwise” and, having done so, the parties could undertake arbitration in P.E.I. and apply the P.E.I. Arbitration Act.  See J. Brian Casey, Arbitration Law of Canada: Practice and Procedure, 3rd ed. paras 3.12.5 as well as 2.10.

(ii) the DRC bylaws excluded seed potatoes from the definition of fruits and vegetables and, because the DRC membership contract applied only to fruits and vegetables, the arbitrator had no jurisdiction to hear and decide a dispute about seed potatoes.

DRC replied that its bylaws were amended in 2008 to include seed potatoes. It sought to participate in HZPC’s litigation so that it could see to the proper interpretation of its membership contract binding all its members across Canada, the U.S. and Mexico.

The Court disagreed.

[35] The lis between HZPC and Skye View concerns the arbitration award.  DRC clearly has no interest in that.  The lis between DRC and HZPC, such as it is, is different.  The motions judge concluded that DRC had a jurisprudential interest in the lis between HZC and Skye View, but nothing more.

The Court refrained from stating whether it agreed with the motions judge. Rather, it relied on finding no reviewable error. “The question before us is not whether we agree or disagree with the motions judge.  His decision is entitled to deference.

DRC invited the Court to consider a 2019 Master’s decision in Re/Max All-Stars Realty Inc. v. Real One Realty Inc., 2019 ONSC 4956 and involving what the Court described as “an argument similar, if not identical” to DRC’s. For more on that decision, see the Arbitration Matters note “Administering institution granted leave to intervene in challenge to appellate arbitral award”.

[36] The Re/Max case is a case where the successful applicant made an argument similar, if not identical, to that put forth by DRC.  In that case the Master granted leave for the Ontario Real Estate Association (OREA) to intervene in a private dispute between members.  In that case members of the OREA were required to submit disputes to binding arbitration.  One party was dissatisfied with the results and made application under the Ontario Arbitration Act to review the decision.  Notwithstanding that it was a private dispute the Master granted intervenor status to OREA to make written and oral submissions concerning some jurisdictional issues, the integrity and fairness of the process, and as well “to fill in any gaps” on the record and answer questions for the court. 

 [37] This argument is an invitation by DRC to agree with the decision in Re/Max and to assess the motions judge’s exercise of discretion on a correctness basis.  That we cannot do.  The Re/Max case is a decision of a Master.  A Master in Ontario is the equivalent of the Prothonotary on Prince Edward Island.  While Master’s do have expertise in procedural matters, the fact remains that their decisions bind no one.  Should a Master’s rationale be persuasive, a court is free to follow it.

Other than recognizing that a Master’s reasoning may be persuasive but not binding, the Court did not address the merits of the reasoning applied by the Master in the Ontario decision.

The Court determined that decision was reasonable because the decision demonstrated that the motions judge “clearly understood DRC’s position, considered fully their interest in the lis as well as the case law provided by counsel and the documentary evidence that was placed before him.

Issue (3) – paras 39-52 – DRC argued that the HZPC and Skye View litigation “revolves wholly around the interpretation of its membership contract” and fairness urged that it be entitled to participate.

The Court held that the motions judge had drawn not an unreasonable conclusion by asserting that having drafted a contract subject to interpretation by the courts is not sufficient reason to add the drafter as intervener.  DRC specified that, unlike United Food and Commercial Workers Union Local No. 832 v. Westfair Foods Ltd., 2003 MBQB 300, DRC was a party to the membership contract.  The Court acknowledged this fact but held that the motions judge was aware of it and “[i]t is also a fact that does not make his decision unreasonable.

The Court further held that agreement as to which arbitration legislation applied turned on whether the parties’ agreement altered the DRC rules. The Court held that this is a question of fact and did not see how the DRC could assist. 

The Court held that the arguments proposed by DRC could be made by Skye View.

Issue (4) – paras 53-62 – DRC argued that its litigation and HZPC’s litigation could have been consolidated under Rule 6.01 because the two (2) shared a question of law or fact in common: the interpretation of the membership contract between DRC and HZPC.

[55] HZPC agrees that it is bound by the terms of the membership contract dated September 2, 2005.  HZPC also agrees with DRC that Article 69 of DRC’s mediation and arbitration rules apply and that mandates that the law of Ontario applies to arbitrations, unless the parties “agree otherwise.”  In short, HZPC agrees with DRC on everything that DRC seeks in its application except DRC’s request for determination that the Ontario Arbitration Act governs the arbitral process in this case.  That is because HZPC argues that Skye View and HZPC agreed otherwise.

[56] In its application before the court, the only dispute between HZPC and DRC is a question of fact.  That is whether or not Skye View and HZPC agreed otherwise.  While I proffer no opinion as to whether or not the law relied upon by HZPC would carry the day, I do note that DRC has not proffered, at this stage, any law to the contrary.  They argue that HZPC and Skye View did not agree otherwise.  That is a question of fact between Skye View and HZPC as they were the parties to the arbitration.   It is difficult to imagine how DRC, a third party, could shed any light on that issue.

The Court held that DRC would have to insert itself into the private dispute between HZPC and Skye View to prevail on this argument and, in any event, the motions judge’s decision was discretionary. “The question before this court is not whether we agree with the motions judge but whether he was clearly wrong.  His decision is entitled to deference.

urbitral note – In each portion of its analysis on the issues rasied, consistent with the standard of reasonableness, the Court refrained from stating whether it agreed or not with the reasoning in first instance, measuring the latter only against whether it was reasonable or not unreasonable.  As a result, the Court’s reasons identify but do not provide the Court’s own guidance on the particular factual and legal relationship created by DRC being a party to the membership contract binding HZPC and Skye View.  The Court did note the following:

(i) at para. 44, the Court accepted that DRC was a party to the membership contract and that this fact was before the motions judge; 

(ii) at para. 47, the Court held that amendment to the arbitration agreement was a question of fact but involved only HZPC and Skye View; and, 

(iii) at para. 56, the Court reiterated that HZPC was invoking the membership contract and that HZPC’s key argument in its lis with Skye View involved amendment to and respect of the arbitration agreement applicable as a result of that membership. 

Given the genesis for the DRC under the NAFTA and the arguments it proposed to contribute, the litigation appears to raise more than just a lis between two commercial entities but also public interest.  The courts are more open to granting intervention in the latter cases.  See Daniel Urbas, “Old Ways Won’t Open New Doors” – Approaching Interventions from an Access to Justice Point of View, Annual Review of Civil Litigation, pp 287-378 (Carswell Thomson Reuters: Toronto, 2016).

It remains open whether/how such types of membership contracts and/or their resulting arbitration agreements can be amended by only two (2) parties (those with a dispute) despite a specific concern of another party (the DRC) that the amendment or conduct of the arbitration undermines the integrity of the one or both of the membership contracts and arbitration agreements.  The answer might be as simple as that the arbitration agreement agreed to by members arises and applies only between members who subsequently develop a commercial dispute between them and, once applicable, binds only those parties to that commercial dispute. 

The DRC stressed that it did not seek to challenge or support HZPC’s or Skye View’s position in the commercial dispute but, rather, intervene to submit argument on the integrity of the dispute resolution process it had established and oversaw.