Ontario – legislation permitting application to court does not oust arbitrator’s jurisdiction for same remedy – #485

In Toronto Standard Condominium Corporation No. 1628 v. Toronto Standard Condominium Corporation No. 1636, 2021 ONCA 360, Ontario’s Court of Appeal held that wording in the Condominium Act, 1998, SO 1998, c 19 which permits an application to the Superior Court for relief regarding oppression set out in that legislation “does not oust the jurisdiction of an arbitrator to consider the same relief, if that relief is part of the dispute in question that properly falls within the terms of the arbitration provision”.  The Court also expressly accepted that a stay order would result in “parallel proceedings” – arbitration between two (2) parties and court litigation with all four (4) over the balance of the dispute – but concluded that parallel proceedings did not “detract from the central point” that two (2) of the parties must arbitrate.  The Court did observe that the other non-parties to the arbitration “might voluntarily agree to be part of the arbitration proceedings”.

The Court had earlier granted leave to appeal from the decision in first instance which had denied a stay and, in granting leave, addressed the proper scope and application of section 7(6) of Ontario’s Arbitration Act, 1991, SO 1991, c 17. See the earlier Arbitration Matters note “Ontario – appeal court reaffirms jurisdiction for appeal of stay decision where decision holds arbitration agreement does not apply – #385” regarding Toronto Standard Condominium Corporation No. 1628 v. Toronto Standard Condominium Corporation No. 1636, 2020 ONCA 612

The dispute involved four (4) parties: Soho Grand Condominiums Inc. (“Soho”); Toronto Standard Condominium Corporation No. 1628 (“Condo 1628”); Toronto Standard Condominium Corporation No. 1636 (“Condo 1636”); and, Soinco Limited (“Soinco”).  In its reasons, the Court of Appeal referred to Condo 1628 as Respondent.

The decision in first instance issued before TELUS Communications Inc. v. Wellman, 2019 SCC 19 (CanLII), [2019] 2 SCR 144. Condo 1636, Soho and Soinco applied, unsuccessfully, for an order staying the litigation under section 7 of the Arbitration Act.  In first instance, the motion judge dismissed the application in Toronto Standard Condominium Corporation No. 1628 v. Toronto Standard Condominium Corporation No. 1636 et al., 2019 ONSC 1827.  In doing so, the motions judge relied on the Court of Appeal’s interpretation of section 7(5) in Griffin v. Dell Canada Inc., 2010 ONCA 29, leave to appeal refused Dell Canada Inc. v. Thaddeus Griffin, 2010 CanLII 27725 (SCC), [2010] S.C.C.A. No. 75. That interpretation affirmed discretion to refuse a partial stay.

That decision in first instance issued a few weeks before the Supreme Court of Canada released its own interpretation of section 7(5) in TELUS Communications Inc. v. Wellman, appearing to effectively overturn the Court of Appeal’s contrary interpretation of section 7(5).  In its reasons, the Supreme Court commented on section 7(6) at paras 91 and 104.

The parties disputed amounts allegedly owing under a cost-sharing agreement (“Reciprocal Agreement”) for common facilities in two (2) adjoining condominium projects.  Each of the projects was administered separately, one by Condo 1628 and the other by Condo 1636.  Condo 1628 and the declarant, Soho, signed the Reciprocal Agreement.  Soinco owned the common facilities.

Ontario’s Condominium Act, 1998, SO 1998, c 19 at section 132(1) deems that specific types of agreements involving specific groups of parties contain a provision to submit disagreements to mediation and then, if no settlement has arisen, to arbitration under Ontario’s Arbitration Act.  Though the legislation inserted agreements to arbitrate whether or not the parties chose to do so, the Reciprocal Agreement did contain the following provision:

6.1 The validity, construction and performance of this Agreement shall be governed by the laws of the Province of Ontario and any dispute that may arise under this Agreement shall be determined by arbitration by a single arbitrator to be agreed upon by the parties within thirty (30) days of written notification by any of the parties of a request for arbitration. If the parties are unable to agree upon the arbitrator, same shall be appointed upon application to a single judge of the Ontario Superior Court of Justice in accordance with and pursuant to the Arbitration Act, 1991 (Ontario), as amended. The arbitrator’s decision shall be final and binding upon the parties and shall not be subject to appeal”.

On December 29, 2017, Condo 1636 demanded that Condo 1628 pay Soinco arrears totalling $412,903.20 owed by Condo 1628’s.  Condo 1628 refused.  Condo 1636 threatened to bring the matter to arbitration if they could not resolve it amicably.  Condo 1628 required that the parties undertake mediation which they did but unsuccessfully.  Condo 1636 then advised that they should proceed to arbitration.

Rather than pursue arbitration, on September 26, 2018 Condo 1628 initiated litigation against Condo 1636, Soho and Soinco.  In its litigation, Condo 1628 alleged that Soho imposed the Reciprocal Agreement on Condo 1628 through oppression, seeking remedies under section 135 of the Condominium Act, and based on false, deceptive, or misleading statements or information, seeking remedies under section 133 of the Condominium Act.  Condo 1628 further alleged that Soho controlled the board of directors of Condo 1628 when it signed the Reciprocal Agreement and imposed a disproportionate share of common facilities costs on Condo 1628.

On appeal, the Court resumed the source of the dispute and the procedural history leading up Condo 1628’s decision to initiate litigation and the responding motion for a stay.  The Court also outlined at paras 15-18 the reasoning in first instance and highlighted the following conclusion from para. 75 of the decision in first instance.

While an arbitration could deal with some aspects of this dispute, and while other aspects remain contingent on how narrow or broad an arbitrator sees the jurisdiction of the arbitration clause in the Reciprocal Agreement and s. 132 of the [Condominium Act, 1998], it is apparent that what I have concluded are the core or essential aspects of this application would need to proceed to this court to be resolved, as they arise under s. 135 of the [Condominium Act, 1998]”.

The Court conceded that part of the source of the error it identified stem from the motions judge not having “the benefit of the decision in TELUS Communications Inc. v. Wellman, 2019 SCC 19, [2019] 2 S.C.R. 144, when he reached his decision”.  The Court described the impact of the decision by noting that the Supreme Court  had “made it clear that a court did not have discretion to refuse to stay claims that were dealt with in an arbitration agreement”.  In its own reference to the Supreme Court’s reasoning, the Court of Appeal referenced para. 76.

[76] More fundamentally, Mr. Wellman’s interpretation sits at odds with the policy underlying the Arbitration Act that parties to a valid arbitration agreement should abide by their agreement. If accepted, Mr. Wellman’s interpretation would reduce the degree of certainty and predictability associated with arbitration agreements and permit persons who are party to an arbitration agreement to “piggyback” onto the claims of others. Ultimately, this would reduce confidence in the enforcement of arbitration agreements and potentially discourage parties from using arbitration as an efficient, cost-effective means of resolving disputes. Clearly, this was not what the legislature had in mind when it passed the Arbitration Act”.

The Court observed that the dispute as between the parties was “clearly covered by the very broad language of the arbitration clause” and determined that the motions judge “should have stayed that portion” of the application.

Section 7(2) – The Court noted Condo 1628’s reliance on section 7(2) of the Arbitration Act which permits the court to refuse a stay if the agreement to arbitrate is invalid.  Condo 1628 argued on appeal that the agreement to arbitrate was unconscionable and therefore invalid, invoking Uber Technologies Inc. v. Heller, 2020 SCC 16 with reference to paras 3-4, 52-53 and 98.

The Court characterized this argument as “a late effort”, noting that it would not “give effect to this submission” because Condo 1628 had not raised it in first instance and “we do not see any basis upon which” the agreement to arbitrate could qualify as unconscionable.

Oppression claim – The Court disagreed with the characterization given in first instance to the dispute’s “pith and substance”.  Instead of the dispute being an oppression remedy claim, the Court asserted that the claim was “with respect to the interpretation and application of the Reciprocal Agreement”, adding that resolution of those would leave little else to advance in court.

[25] In our view, courts should generally be cautious in their approach to oppression claims of the type asserted here. In particular, courts should be wary of allowing such claims to overtake, and potentially distort, the dispute resolution process that lies at the heart of the Condominium Act, 1998, a central aspect of which is a preference for arbitration over court proceedings. In other words, courts should be alert to the possibility that persons, who are party to an arbitration agreement, are attempting to avoid that process by « piggybacking » onto claims made against others: see e.g. MTCC No. 965 v. MTCC No. 1031 and No. 1056, 2014 ONSC 5362, at para. 18; see also TELUS, at paras. 76, 98”.

Though stating that it need not determine the question on the appeal before it, the Court of Appeal disagreed that the oppression section of the Condominium Act, 1998 could only be determined by a court.  With reference to section 135(1), the Court acknowledged that an application could be made to the Superior Court but the wording was permissive.

However, s. 135(1) does not oust the jurisdiction of an arbitrator to consider the same relief, if that relief is part of the dispute in question that properly falls within the terms of the arbitration provision or within the terms of s. 132. In this case, we have already noted the broad language of the arbitration clause. There is nothing, in our view, that would preclude an arbitrator, acting under the authority of that arbitration clause, from considering the alleged oppressive conduct advanced by the respondent in appeal, at least as it relates to the actions of TSCC 1636”.

The Court recognized at para. 29 that it was “not entirely clear” which of the parties were properly subject to the arbitration process.  Having recorded that comment, the Court concluded that the “core issue” related to the interpretation and application of the Reciprocal Agreement and, as such could proceed in arbitration while the balance of the application proceeds in court. The Court inserted a prompt, noting that the non-parties could agree to join the arbitration.

Subject to our observations as to the possible application of the arbitration process to Soho and Soinco, there is nothing that prevents the issues, as between those two parties and the respondent in appeal, from proceeding in the Superior Court of Justice while the arbitration is ongoing, subject to any motion that might be brought for a stay of that proceeding on other grounds. We would also note the possibility that, rather than have parallel proceedings going on, Soho and Soinco might voluntarily agree to be part of the arbitration proceeding”.

The Court expressly held that those considerations did not impact on the obligation of Condo 1628 and Condo 1636 engaging in arbitration.

Fresh evidence – The Court readily dismissed Condo 1628’s application to adduce fresh evidence.  The application did not meet the test set out in Palmer v. The Queen, 1979 CanLII 8 (SCC), [1980] 1 SCR 759.  The evidence also failed to qualify as relevant to the issue of the arbitration agreement’s application or to affect the result.

The Court granted the appeal and stay the application as it relates to the oppression issues between Condo 1628 and Condo 1636.

urbitral notes – First, in granting leave to appeal in Toronto Standard Condominium Corporation No. 1628 v. Toronto Standard Condominium Corporation No. 1636, 2020 ONCA 612, the Court of Appeal set out the role of judicial interpretation of statutes, observed how a wrong interpretation is never right, set out its approach to overruling its own precedents, acknowledged new guidance given in TELUS Communications Inc. v. Wellman, 2019 SCC 19 (CanLII), [2019] 2 SCR 144 on section 7(5) of Arbitration Act, 1991, SO 1991, c 17 but distinguished its impact from the Court of Appeal’s well-accepted reasoning in Huras v. Primerica Financial Services Ltd., 2000 CanLII 16892 (ON CA) on section 7(6)’s application.  Reasserting its interpretation on section 7(6), the Court held that it did have jurisdiction to hear an appeal of a motion judge’s decision purporting to exercise discretion under section 7(5) to deny a stay. On the merits of the appeal, the Court then applied the Supreme Court’s interpretation which overturned the Court of Appeal’s interpretation on section 7(5).

Second, regarding any presumptive exclusion of statutory remedies, see the earlier Arbitration Matters notes:

(i) “Québec – default is all disputes subject to broadly-worded arbitration agreement unless expressly excluded – #309” regarding Groupe Dimension Multi Vétérinaire Inc. v. Vaillancourt, 2020 QCCS 1134.  Mr. Justice Frédéric Bachand, as he then was, dismissed attempts to limit an arbitral tribunal’s jurisdiction by way of presumption that statutory recourses were excluded unless expressly included.  He held that the reverse approach was supported by a liberal interpretation which must be given to such agreements to arbitrate and legislative policy favouring development of consensual arbitration.  Bachand J. concluded that an arbitral tribunal’s jurisdiction extends to all disputes relating directly or indirectly to the contract in which the agreement to arbitrate is inserted unless the terms of that agreement or relevant contextual elements indicate a real intention of the parties to limit its scope. 

(ii) “Québec – attempt dismissed to limit arbitral jurisdiction by presumption statutory recourse excluded unless expressly included – #476” regarding Valiquette v. PL Nouvelle France Inc., 2021 QCCS 1096. Madam Justice Florence Lucas followed the lead recently set out in Groupe Dimension Multi Vétérinaire Inc. v. Vaillancourt, 2020 QCCS 1134 which dismissed attempts to limit an arbitral tribunal’s jurisdiction by way of presumption that statutory recourses were excluded unless expressly included.  Lucas J. held that an arbitrator’s jurisdiction extends to all disputes relating directly or indirectly to the contract in which the agreement to arbitrate is contained, unless from its wording or the context a real intention by the parties to limit its scope.  Lucas J. held that nothing in the agreement to arbitrate – which defined ‘Dispute’ in ‘excessively broad terms’ – or in the context of the matter permitted inferring the parties’ intention to limit the scope of their agreement to arbitrate or to exclude the oppression remedy from an arbitrator.  Relying on the record before her, Lucas J. also definitively determined the issue of jurisdiction and referred the parties to arbitration.

(iii) “Ontario – majority shareholder referring contract interpretation to arbitration is not oppressive conduct – #275” regarding Richcraft Homes Ltd. v. Urbandale Corporation et al., 2020 ONSC 411. Mr. Justice Robert J. Smith dismissed a minority shareholder’s action which alleged oppression based on a majority shareholder requesting a legal opinion favourable to its interests and then submitting the interpretation to arbitration.  Smith J. held that any party to a commercial agreement, including a majority shareholder, is entitled to seek a legal opinion concerning interpretation its rights under a contract and, instead of acting illicitly on any interpretation, refer interpretation of the contract to arbitration.

Étiquettes