In Kingston Automation Technology Inc. v. Montebello Packaging, 2021 ONSC 2684, Mr. Justice Graeme Mew dismissed an application to stay an award pending other applications to appeal that award and to set it aside. Addressing one of applicant’s grounds which raised a jurisdictional issue involving whether all claims granted were within the scope of the agreement to arbitrate. Mew J. noted that the applicant now objecting to those claims being added was the party which had added them. Mew J. held that applicant had agreed to their inclusion, had not objected within the delays at the onset of the arbitration, only raising the objection “rather late in the game”. Mew J. also refused to order a stay of the arbitration which remained ongoing. Applicant had made no application to stay to the arbitrator and Mew J. concluded he had no basis on which to intervene. Mew J. acknowledged the potential for “wasted time and expense” but such could be compensated in an award for costs and “it is not, in any event, a basis for displacing the kompetenz-kompetenz principle by interfering with the arbitrator’s management of the arbitration”.
Kingston Automation Technology Inc. (“Kingston Automation”) and Montebello Packaging, a division of Great Pacific Enterprises Inc. (“Montebello Packaging”), entered into a January 8, 2016 Shaped Container Engineering Agreement (“SCEA”) pursuant to which Kingston Automation, a manufacturer of automated production equipment, undertook to design and build a blow mould machine (“BMM”). Using heat and compressed air, Kingston Automation’s BMM uses new technology to shape aluminium containers.
Following a purchase order for an initial BMM, Montebello Packaging ordered an additional two (2) BMMs.
Following a five (5) hearing, the arbitrator issued a February 11, 2021 award (“Award”) and follow up March 22, 2021 award dealing with certain implementation issues arising from the Award (“Implementation Award”). A case management conference had been scheduled with the arbitrator for April 13, 2021 to determine the procedure for the continuation of the arbitration.
In the Award, the arbitrator ordered that Kingston Automation (i) return to Montebello Packaging three (3) BMMs by April 9, 2021 and (ii) refund to Montebello Packaging a payment of US $288,732.00 plus interest of US $19,285.12 regarding orders for two (2) production machines.
Kingston Automation applied March 4, 2021 under section 46 of the Arbitration Act, 1991, SO 1991, c 17 to set aside the Award or, in the alternative, for leave under section 45 to appeal on a question of law. Montebello Packaging advised that would apply, but had not yet applied, to enforce the Award and Implementation Award.
Mew J. observed that the SCEA contained a step dispute resolution process which required that disputes which could be resolved “will be settled by final and binding arbitration pursuant to the provisions of the Arbitration Act (Ontario)”. The provisions applied to “any dispute or disagreement between the Parties with respect to the interpretation of any provision [of the SCEA], the performance of either Party…or any other matter that is in dispute between the Parties arising from or in connection with or related to [the SCEA]”.
(1) Stay of the Award pending disposition of application – Section 50(1) of the Arbitration Act provides that a person entitled to enforcement of an award made in Ontario or elsewhere in Canada can apply to the court for enforcement. Section 50(3) stipulates that court “shall give a judgment enforcing an award made in Ontario unless” one (1) of four (4) specific situations exists including 50(3)(b) “there is a pending appeal, application to set the award aside or application for a declaration of invalidity” or 50(3)(c) “the award has been set aside or the arbitration is the subject of a declaration of invalidity”. Kingston Automation argued that section 50(3) establishes “a presumption in favour of ordering a stay”.
Mew J. nuanced the approach mandated by the Arbitration Act, pointing further into section 50 to subsection (5) which gave the court options if the appeal or set aside application was pending.
If the period to commence an appeal, apply to set the award aside or apply for a declaration of invalidity has not yet elapsed or such proceedings are pending, section 50(5) authorizes the court to make a choice. In wording which Mew J. described as “inelegant”, section 50(5) authorized a court to either: (a) enforce the award or (b) order, on such conditions as are just, that enforcement of the award is stayed until the period has elapsed without such a proceeding being commenced, or until the pending proceeding is finally disposed of. Section 50(6) also authorizes the court to issue directions for the “speedy disposition of the proceeding” if the court does stay enforcement of the award made in Ontario.
For his exercise of discretion in granting or refusing a stay, Mew J. looked to the requirements set out RJR-MacDonald Inc. v. Canada (Attorney General), 1994 CanLII 117 (SCC),  1 SCR 311: undertake a preliminary assessment of the merits of the case to ensure that there is a serious question to be tried; determine whether the applicant would suffer irreparable harm if the application were refused; and, assess which of the parties would suffer greater harm from the granting or refusal of the remedy pending a decision on the merits. Mew J. also referred to J. Kenneth McEwen and Ludmila Herbst, Commercial Arbitration in Canada: A Guide to Domestic and International Arbitrations, Carswell Online at §12:4.
In the absence of any stipulation under the SCEA regarding appeals, Mew J. looked to section 45 which restricted Kingston Automation’s appeal to a question of law, subject to a grant of leave provided the court was satisfied that:
– the importance to the parties of the matters at stake in the arbitration justifies an appeal; and,
– determination of the question of law at issue will significantly affect the rights of the parties.
Mew J. tacked onto the latter provision a further observation on the use of the term “final and binding”.
Mew J. did note that Kingston Automation did not need leave to apply to set aside the Award on grounds set out in section 46(1). In the matter before him, Kingston Automation argued that certain aspects of the Award were not covered by the agreement to arbitrate contained in the SCEA.
Mew J. then referred to Louis v. Poitras, 2020 ONCA 815 paras 15-18 which addressed the three (3) part test for a stay and added that additional factors were to be considered when the stay motion involves a motion for leave to appeal. Those additional factors include “a consideration of the principles governing applications for leave to appeal”.
Mew J. then outlined some of the alleged errors of law which Kingston Automation proposed to raise. Those alleged errors involved instances in which Kingston Automation submitted that the arbitrator “fundamentally misconstrued provisions of the SCEA” and “in doing so, ignored the evidence” adduced by its witness who negotiated the SCEA for Kingston Automation. That evidence concerned the parties’ intention and Kingston Automation argued that it had not been challenged by contradictory evidence from Montebello Packaging.
“ I pause to observe that whereas traditionally, the determination of contractual rights and obligations was considered a pure question of law, since the decision in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, the interpretation of contracts is now regarded as a question of mixed fact and law and, thus, the bar for obtaining leave to appeal issues of contractual arbitration has, arguably, been raised: see generally, Harvin Pitch and Lucas Kittmer, “Arbitral Awards: Appeals, Setting Aside and Enforcement”, in Huberman (ed.), A Practitioner’s Guide to Commercial Arbitration, (Toronto: Irwin Law, 2017), at 394”.
Mew J. focused on the jurisdictional argument raised by Kingston Automation, describing the situation as “an unusual one”. Kingston Automation argued that it had initiated arbitration and it had asserted that all of its POs were subject to the SCEA and therefore arbitrable. In the arbitration Montebello Packaging had argued that certain POs were not governed by the SCEA’s terms and conditions but were still arbitrable because they fell within the SCEA’s agreement to arbitrate which defined “disputes” as including “any other matter that is in dispute between the Parties arising from or in connection with or related to” the SCEA.
“ Section 46(3) of the Arbitration Act precludes a court from setting aside an award on jurisdictional grounds if the party has agreed to the inclusion of the dispute or matter. Furthermore, a party objecting to an arbitral tribunal’s jurisdiction shall make such objection no later than the beginning of the arbitration hearing: Arbitration Act, section 17(3). No such objection was taken by KAT at the outset of the arbitration (although it was raised by KAT, to quote the arbitrator “rather late in the game”)”.
Noting without deciding, Mew J. recorded what Kingston Automation alleged to be a “selective and inconsistent” application of the SCEA which Kingston Automation further alleged “resulted in provisions of the SCEA which would have benefited KAT being ignored despite other provisions of the agreement being applied”. Remarking that his assessment was only “preliminary in nature”, Mew J. acknowledged that Kingston Automation had identified “enough substance” to satisfy him that there were serious question to be determined on both the leave and the set aside applications.
The balance of the test for granting a stay did not balance in Kingston Automation’s favour. Mew J. agreed with Montebello Packaging that, in the circumstances, irreparable harm and balance of convenience did not favour a stay.
“ As a result, the object of the stay of enforcement of the award would be limited to the return to Montebello of assets and equipment. There is no dispute that the assets and equipment in question were subject to the SCEA. Furthermore, in its notice of application, KAT seeks, among other things, an order of the court to vary the award to order KAT to deliver the equipment subject to the SCEA to the respondent, albeit after the respondent has paid the monies which the applicant claims to be owed pursuant to the SCEA. In its factum and in oral argument, KAT candidly acknowledges that it wishes to retain the equipment in question, principally the BMM machine, as security against the ultimate indebtedness which it believes Montebello will incur if the agreement is correctly interpreted and applied.
 Furthermore, as the respondent points out, KAT has failed to put forward any admissible evidence of irreparable harm and submits that, in any event, the harm could be entirely quantified and cured through the payment of money”.
(2) Stay of the balance of the arbitration – Mew J. declined to order a stay of the arbitration proceeding. He noted that it was not yet complete and that the kompetenz-kompetenz principle applied as reflected in section 17(1) of the Arbitration Act. He coupled section 17(1) with section 20(1) which authorized the arbitrator to determine the procedure to be followed.
“An application for a stay of the arbitral proceeding itself should, accordingly, be made to the arbitrator. No such application has been made. There is, accordingly, no basis upon which the court could or should intervene”.
Mew J. acknowledged but dismissed Kingston Automation’s concerns over the “potential for wasted time and expense” if the arbitration proceeded pending appeal and set aside applications.
“Certainly, if KAT is right, there is the potential for wasted time and expense. But that can be compensated for, at least to some extent, by appropriate awards of costs. And it is not, in any event, a basis for displacing the kompetenz-kompetenz principle by interfering with the arbitrator’s management of the arbitration”.
urbitral notes – First, regarding the extent of the court’s support for the arbitrator’s control of the procedure, see the recent Arbitration Matters note “Alberta – leave to appeal refused when ICC tribunal follows own procedure to bar late-raised ‘arguably complete’ defence – #463”.
Though she acknowledged that a particular notice provision in the parties’ subcontract “would arguably provide a complete defence”, Madam Justice Johnna C. Kubik in TR Canada Inc v. Cahill Industrial Limited, 2021 ABQB 274 held that the arbitral tribunal committed no breach of procedural fairness or rule of natural justice when it barred a party from relying on that provision for its defence. Kubik J. held that the ICC Rules of Arbitration “empower the tribunal to establish the process by which the dispute will be presented and heard, including with respect to the timing for filing pleadings, the hearing of evidence and the timing of submissions”. Dismissing leave to appeal the ICC tribunal’s award under section 44 of the Arbitration Act, RSA 2000, c A-43, Kubik J. held that the tribunal had “applied its own procedural rules to the record of proceedings, and exercised its discretion, within the powers conferred on it, to bar the defence raised”. Kubik J. accepted that the tribunal was authorized to concluded that failure to plead the notice provisions was “prejudicial to the other party, depriving it of the opportunity to advance responsive evidence and argument.
Second, for insights into court support for how arbitrators handle complex, less common procedural issues, see the earlier Arbitration Matters note “Ontario – court enforces award after arbitrator required to untangle a cluster of less common procedural challenges – #070”.
In Fuego Digital Media Inc. v. DAC Group (Holdings) Limited, 2018 ONSC 2897, Madam Justice Julianne Parfett considered and dismissed challenges to a final award based on an alleged denial of natural justice and on an alleged excess of jurisdiction. The reasons demonstrate key procedural difficulties encountered in complex IT arbitration and the variety of solutions applied by arbitrators to resolve those difficulties and provide the parties with an enforceable final award. The procedural history demonstrates how to deal with a bundle of less common issues such as adjournments to obtain financing and new legal counsel, non-payment of fees leading to dismissal of counterclaim, new evidence, draft awards provided by parties and injunctive relief against the officers and directors of corporate entities.
Third, for a different, less common approach to an arbitrator’s control over the procedure, see the recent Arbitration Matters note “B.C. – court adjourns its assistance to issue subpoenas approved in international commercial arbitration – #416”.
Despite having “no difficulty accepting” the arbitrator’s conclusion that non-party witnesses had testimony “relevant to the issues in the Arbitration and material to its outcome”, Mr. Justice Gordon C. Weatherill in Octaform Inc. v Leung, 2021 BCSC 73 opted to adjourn an arbitral party’s applications to issue subpoenas in assistance of an arbitration conducted under the International Commercial Arbitration Act, RSBC 1996, c 233. Weatherill J. did affirm that arbitrations are “autonomous, self-contained, self-sufficient processes”, did acknowledge that “[i]t is the task of the Arbitrator to determine the truth” and did note that the arbitrator had not varied his initial approval of the subpoenas request after having participated in fourteen (14) days of hearing. Nonetheless, Weatherill J. considered the applications “premature”. He commented on whether one witness had been duly contacted and recorded that the other witness had set conditions on potentially attending. The witnesses did have over three (3) months between service of the October 9, 2020 applications and the January 14, 2021 hearing at which the witnesses were represented and could have addressed any concerns about willingness to participate. Weatherill J. still opted to see whether either witness in the future “unreasonably refuses to provide written evidence in chief and attend the hearing of the Arbitration for viva voce examination in chief, cross-examination and re-examination”. At that future time he advised “I will consider issuing the requested subpoenas”.