Parties who select arbitral rules, or the administration facilities of an arbitral institution, may do so because they believe that the rules or institution will provide a fair and efficient administration of the arbitral process. They may not suspect that the rules will affect their right to appeal the award.

However, in Highbury Estates Inc. v. Bre-Ex Ltd., the Ontario Superior Court recently held that by adopting arbitral rules which preclude an appeal, the parties thereby opt out of statutory appeal rights.

The Arbitration Act, 1991 and the National Arbitration Rules

Sub-sections 45(2) and (3) of the Ontario Arbitration Act, 1991 provide for a right of appeal on law, fact and mixed fact and law if the parties agreement so provides. Sub-section 45(1) states that, if the arbitration agreement does not deal with appeals on questions of law, then an appeal on a matter of law may be allowed with leave of the court. Section 3 of the Act permits the parties to contract out of Section 45. By making Ontario the place of the arbitration or by otherwise making the arbitration subject to the Act, the parties agree to these statutory rights of appeal unless they contract out of them.

In the present case, the arbitral agreement stated that National Arbitration Rules applied to the arbitration. Rule 47 of those rules provided that ‘[u]nless otherwise agreed, the award of the Tribunal shall be final and binding and there shall be no appeal’.

In effect, both the Act and the Rules allowed the parties to “otherwise agree.” The Act does so in Section 3. The Rules do in the provision referred to above. In this circumstance, how does one tell if the parties “agreed otherwise” to the Act or to the Rules?

The Decision

The decision of the court was based on the following:

  1. The court referred to a number of prior decisions which dealt with contracting out of section 45 of the Act: Orgaworld Canada Ltd. v. Ottawa (City), 2015 ONSC 318 (Ont. S.C.J.), paras. 48-72, Inforica Inc. v. CGI Information Systems & Management Consultants Inc. (2009), 97 O.R. (3d) 161 (Ont. C.A.), Ontario Hydro v. Dennison Mines Ltd., [1992] O.J. No.2948 (Ont. Gen. Div.), Piazza Family Trust v. Veillette, 2011 ONSC 2820 (Ont. Div. Ct.). The court then concluded that “Where parties have turned their minds to the question and have decided that a decision of the arbitrator will be final and binding, and not subject to appeal on a question of law, s. 45 of the Act operates to exclude recourse to an appeal.”
  1. The court concluded that the language in the arbitration agreement was sufficient to incorporate the arbitral rule excluding appeal, in this case Rule 47 of the National Arbitration Rules. The court held that the decision in Orgaworld, was “unequivocal that language such as was used in Rule 47 and incorporated into the Arbitration Agreement expresses the necessary intention by the parties to forgo a right to appeal, or to seek leave to appeal, on questions of law.”

However, these cases did not deal with arbitration rules which barred an appeal.

In the Orgaworld Canada case, article 25.1(d) of the arbitration agreement itself said that the decision of the arbitrator “shall be final and binding on the parties and there shall be no appeal therefrom.” Based upon this wording, the court held that there was no right of appeal.

In the Inforica case, the question was whether the arbitrator had jurisdiction to order security for costs. The arbitrator held that the ADR Chambers rules had been incorporated into the arbitration agreement and that, therefore the arbitrator had authority to order security for costs as provided in section 8(1)(h) of those rules. The arbitrator also held that he had the authority to order security for costs pursuant to s. 20 of the Act, which provides that an arbitrator “may determine the procedure to be followed in the arbitration”.

The decision of the arbitrator in the Inforica case was upheld by the Ontario Court of Appeal.  The Court of Appeal held that “it was clearly open to the arbitrator to conclude on this record that the arbitration was tak[ing] place with ADR Chambers” and it was, therefore, subject to the ADR Chambers Rules. Accordingly , the Court of Appeal held that the arbitrator’s conclusion that he had jurisdiction to grant security for costs under the ADR Chambers’ rules “was either a finding of fact or a finding close to the fact end of the mixed fact and law spectrum with which a court should be reluctant to interfere.” The decision did not deal with appeals.

The Denison Mines case involved a motion to stay the action to rectify a commercial agreement between Denison Mines and Ontario Hydro. The stay motion was based on the existence of the arbitration agreement in the commercial agreement. The decision did not deal with appeals or arbitration rules. Interestingly, in a later decision in Denison Mines Ltd. v. Ontario Hydro, (2002), 58 O.R. (3d) 26, 2002 CarswellOnt 88 the Ontario Court of Appeal dealt directly with the issue of whether an arbitration agreement barred an application for leave to appeal, and held that it did not when there was nothing expressly in the agreement to that effect.

The Piazza Family Trust case involved a co-tenancy agreement which contained an arbitration clause which stated that “the decision arrived at by the arbitrator shall be final and binding upon the parties and shall not be appealed.” The parties entered into a mediation/arbitration agreement and that agreement provided that “the decision of the Arbitrator is final and binding, with no right of appeal.” The court concluded that “there is no right of appeal of the arbitrator’s decision under section 45 of the Arbitration Act where the arbitration agreement states that the arbitrator’s decision is final and binding with no right of appeal.”

Accordingly, the prior decisions cited in the Highbury Estates decision were not based upon arbitral rules, and did not decide that arbitral rules could bar an appeal. However, the Highbury Estate decision now holds that arbitral rules may have that effect.

Discussion

It is important for parties to realize that by choosing a seat or place for a domestic arbitration, they are making a decision about whether an appeal from the arbitral award is permitted. This issue will only be a consideration in the case of domestic arbitrations since the laws relating to international commercial arbitration (the UNCITRAL Model Law as incorporated into provincial international commercial arbitration statutes in Canada) do not provide for appeals from arbitral awards.

In Canada, the law of the place of a domestic arbitration may or may not allow an appeal on grounds of fact, law or mixed fact and law. For instance, the law of Ontario and some other provinces, which have adopted the Uniform Arbitration Act of the Uniform Law Conference of Canada, allows the parties to agree to an appeal on matters of fact, law and mixed fact and law. The laws of Newfoundland and Quebec do not provide for the parties to so agree.

Based upon the Highbury Estates decision, the parties should realize that by choosing arbitral rules, they may be barring an appeal from the arbitral decision even if the law of the place of the arbitration permits an appeal.

This latter point may not be intuitively obvious to all parties. The rules of the well-known international arbitration institutions do not appear to have any provisions relating to or restricting appeals, presumably because, as already noted, under international commercial arbitration (and the UNCITRAL regime) there are no appeals. So a party involved in a domestic arbitration may not expect the arbitration rules to deal with appeals. If those rules do contain provisions dealing with appeals and the parties do not wish to adopt those provisions, then they should exclude those appeal provisions in their arbitration agreement.

One could argue that arbitral rules should not deal with appeals, since the parties may not expect that the rules will do so. One could also argue that, at the very least, the rules should alert the reader, in bold upfront print, that the rules do limit or prohibit appeals, and not in a clause near the end of the rules without any separate heading or highlighting.

An appellate court may re-examine the Highbury Estates decision in the future. If that occurs, two issues may arise.

One is a factual issue. What if one of the parties testifies that he or she did not read the part of the arbitral rules banning appeals, did not expect the rules to deal with appeals and did not realize the rules did so. Will the court still hold that this part of the rules is incorporated into the arbitration agreement?

The second issue is a legal one: the law relating to incorporation by reference. That subject has been dealt with extensively in construction law. There, a bond or subcontract may incorporate the main contract between the owner and the contractor. The majority of cases hold that the dispute resolution clause in the main contract is not thereby incorporated into the bond or subcontract. The reasoning of those cases is that the parties to the bond or subcontract intend the “working” or project parts of the main contract to be part of the bond or subcontract, but not the dispute resolution part unless it is expressly adopted.

Similar logic might arguably apply to the present issue. When parties to an arbitration agreement adopt arbitration rules, they intend to have those rules apply to the procedures of the arbitration itself, but do they intend to alter the existing statutory regime applicable to the court dispute resolution system, namely appeals, absent clear agreement to do so?

See Heintzman and Goldsmith on Canadian Building Contracts (5th ed.), Chapters 4§3(d), 11§11(a), 12§6(b).

Highbury Estates Inc. v. Bre-Ex Ltd., 2015 CarswellOnt 12073, 2015 ONSC 4966, 257 A.C.W.S. (3d) 22

Arbitration – appeal from arbitral award – arbitral rules – incorporation by reference

Thomas G. Heintzman O.C., Q.C., FCIArb                                                 February 14, 2016

www.heintzmanadr.com

www.constructionlawcanada.com