Ontario – decision maker’s position in judicial hierarchy justifies no reason for different review standard – #262

In ATS Automation Tooling Systems Inc. v. Chubb Insurance Co., 2019 ONSC 5073, Madam Justice Sandra Nishikawa upheld a Master’s decision to dismiss plaintiffs’ motion to stay their own litigation.  The facts did not confirm that the arbitration was active and, as of the date of the appeal hearing, arbitration had not been formalized and the limitation period in which to do so had expired.  Nishikawa J. agreed with earlier case law there was “no compelling reason for adopting differing standards of review on appeal depending solely on the place in the judicial hierarchy occupied by the decision maker whose decision is under appeal”.

The litigation involved claims for damage to medical packaging equipment shipped by IWK (Thailand) Ltd.(“IWK”) from Thailand to a third party in India.  ATS Automation Tooling Systems Inc. (“ATS”), IWK’s parent corporation, claimed against Chubb Insurance Company of Canada (“Chubb”) under ATS’ commercial cargo insurance policy.  Chubb denied ATS’ claim, asserting that the damage occurred during transit overland and not during shipment by sea.

ATS and IWK brought an action in Ontario Superior Court against Chubb but followed by serving a motion to stay their Ontario litigation pending final resolution of arbitration in India. Master Short dismissed that motion. See the earlier Arbitration Matters note “Stay of litigation requires active arbitration and significant overlap of issues” and the decision by Master Donald E. Short in ATS Automation Tooling Systems Inc v. Chubb Insurance Company of Canada, 2018 ONSC 6139.

ATS and IWK appealed the Master’s decision.

Nishikawa J. noted that a Master’s decision to grant or refuse a stay is an exercise of discretion and can be reviewed only if the Master made an error of law, exercised discretion on wrong principles or misapprehended the evidence and thereby committed a palpable and overriding error.  See Zeitoun v. Economical Insurance Group, 2008 CanLII 20996 (ON SCDC) aff’d Zeitoun v. The Economical Insurance Group, 2009 ONCA 415.  In the latter, the Court of Appeal singled out paras 40-41 of the decision in first instance for its “insightful analysis” that “there is no reasoned basis to distinguish between the decision of a master and that of a judge for the purposes of the standards of review on appeal”.

Nishikawa J. held that the Master did not err in the exercise of his discretion, applying the correct principles of law from relevant cases in which one of the parties to the action was not also party to the arbitration agreement.  In doing so, she did pull back in the analysis applied by the Master, commenting that consideration of what would be the appropriate or preferable procedure “may have gone further than necessary or appropriate”.  She expressly narrowed what was in issue and identified any comments beyond that issue as obiter by the Master.

The issue before the Master was not the preferable procedure, as between arbitration in India and a summary judgment motion in Ontario, but whether, based on the applicable principles, a stay should be granted”.

An issue before the court on the stay, and on appeal, was whether the arbitration invoked was in fact active or not. Niskikawa J. qualified the evidence before the Master as “equivocal”. 

[9] In the Decision, the Master found that there was no existing arbitration hearing scheduled in India and that “there is no evidence that there ever will be arbitration in India; and, even if there ever was arbitration in India, Chubb would not be a party to it.”  (Decision, at para. 69). 

[10] The evidence on this issue was equivocal.  DRL initiated an arbitration in the wrong forum in India and had to withdraw it.  When this appeal was heard, DRL had not yet recommenced an arbitration in the proper forum but the limitation period, which would expire on July 21, 2019, had not yet passed.  Since the status of an arbitration in India would be relevant to this appeal, and for the sake of certainty, I requested that counsel advise me after that date whether an arbitration was commenced in the proper forum in India.  At a case conference on August 15, 2019, counsel confirmed that no arbitration had been commenced.

[11] The limitation period has now passed and no arbitration was commenced in India. Accordingly, there can be no stay in favour of arbitration.

Chubb sought costs but only on a partial indemnity scale and argued that the motion to stay was “an exercise in excessive caution” by which ATS and IWK were “simply preserving a contingent claim”.  Nishikawa J. granted Chubb’s request, noting guidelines under section 131(1) of the Courts of Justice Act, RSO 1990, c C.43 that she had the discretion to grant a fair and reasonable amount and not that which reflects any higher, actual costs.  See the factors in Rule 57.01(1) of the Rules of Civil Procedure, RRO 1990, Reg 194 and Boucher v. Public Accountants Council for the Province of Ontario, 2004 CanLII 14579 (ON CA) para. 26.

Though she upheld the refusal to stay in favour of arbitration, Nishikawa J. closed her analysis by reiterating, without more, that courts must show due respect for arbitration agreements, citing TELUS Communications Inc. v. Wellman, 2019 SCC 19 para. 54.

[54] That said, in the years since the Arbitration Act was passed, the jurisprudence — both from this Court and from the courts of Ontario — has consistently reaffirmed that courts must show due respect for arbitration agreements and arbitration more broadly, particularly in the commercial setting. For example, in [Desputeaux v. Éditions Chouette (1987) inc., 2003 SCC 17 (CanLII), [2003] 1 SCR 178], LeBel J. observed “the trend in the case law and legislation . . . to accept and even encourage the use of civil and commercial arbitration” (para. 38). In [Seidel v. TELUS Communications Inc., 2011 SCC 15 (CanLII), [2011] 1 SCR 531], Binnie J. noted that “[t]he virtues of commercial arbitration have been recognized and indeed welcomed by our Court” (para. 23), and he stated that “absent legislative language to the contrary” (para. 42 (emphasis deleted)), “the courts will generally give effect to the terms of a commercial contract freely entered into, even a contract of adhesion, including an arbitration clause” (para. 2). More recently, the Ontario Court of Appeal observed that “[t]he law favours giving effect to arbitration agreements. This is evident in both legislation and in jurisprudence” (Haas v. Gunasekaram, 2016 ONCA 744, 62 B.L.R. (5th) 1, at para. 10)”.

urbitral note – The standard of review applied appears to be that applied to a Master but the source authority expressly reasoned that the decision maker’s position in the judicial hierarchy justifies no compelling reason to adopt differing standards.  Though the court in Zeitoun v. Economical Insurance Group dealt with a decision involving security for costs, the reasoning was applied without caveat to the Master’s decision on a motion to stay.  The reasons in Zeitoun v. Economical Insurance Group are as follows:

[40] The appellant argues that the appropriate standard of review of a master’s order, whether it be final or interlocutory, should be in accordance with that expressed by the Supreme Court in [Housen v. Nikolaisen, 2002 SCC 33 (CanLII), [2002] 2 SCR 235], supra, and by the Court of Appeal in [Equity Waste Management of Canada v. Halton Hills (Town) (1997), 1997 CanLII 2742 (ON CA), 35 O.R. (3d) 321, [1997] O.J. No. 3921 (C.A.)] such that the decision will be interfered with only if the master made an error of law or exercised his or her discretion on the wrong principles or misapprehended the evidence such that there is a palpable and overriding error.

[41] I would agree with that submission. There is, in my view, no compelling reason for adopting differing standards of review on appeal depending solely on the place in the judicial hierarchy occupied by the decision maker whose decision is under appeal. Such an approach is anachronistic and irreconcilable with the presumption of fitness. Rather, similar kinds of decisions and similar kinds of errors ought to be treated similarly, and for that reason, I would hold that where the master has erred in law, the standard of review should be correctness whether the decision be final or interlocutory and whether or not it is vital to the disposition of the lawsuit. The danger in doing otherwise is the potential for the development of straying lines of authority with resulting confusion.

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