The Ontario Court of Appeal has recently considered whether any appeal may be taken from a decision of an arbitral tribunal which is made prior to the final award. The Court held that no such appeal may be taken from such a decision, except if the decision amounts to a “final” order.  The decision appears to leave open the possibility of appealing an arbitral decision if it amounts to a “final order” even if it is not the final award of the tribunal: Universal Settlements International Inc. v. Duscio.

The Background

The arbitration was between the shareholders of Universal, pursuant to a shareholders’ agreement.  The arbitration agreement provided that the arbitrator had authority to make all interim, interlocutory and final decisions.  During the arbitration, the arbitrator made an interim award permitting two shareholders to purchase the shares of two other shareholders.  The parties entered into an escrow agreement requiring that the purchasers pay $1 million into escrow pending the final disposition of the arbitration.

Then the sellers of the shares brought a motion asking for the release of $290,000 of the purchase monies in order to pay their lawyer and for living expenses. The motion was granted.

Later, the purchasers brought a motion for an order requiring the repayment of these monies on the ground that the sellers’ motion had been based on fraudulent evidence.  The arbitrator granted the repayment motion, and also granted the purchasers costs of the motion, but made no finding of fraud. The sellers took the position that the costs order was subject to the bankruptcy of one of the sellers, Mr. Duscio, absent a finding of fraud.  They asserted that the arbitrator had no jurisdiction to make such a costs order and launched an application for leave to appeal to the Superior Court from the arbitrator’s cost award.

In the meantime, the purchasers brought a motion to strike out the statement of defence of the sellers on the ground that the sellers had not paid the costs award. The sellers took the position that the arbitrator had no jurisdiction to enforce payment of the costs award because of Mr. Duscio’s bankruptcy. The arbitrator held that the statement of defence of the sellers should be struck out.  The sellers amended their court application to appeal from that order of the arbitrator.

The arbitrator then proceeded to hear the arbitration in the absence of the sellers.  He held that the sellers were in breach of their fiduciary duty and had converted Universal’s monies. The arbitrator awarded the purchasers $6.1 million including interest. The purchasers then amended their court application to appeal from that further decision of the arbitrator.

The Decision

The Court of Appeal held that, under the Ontario Arbitrations Act, 1991, the authority of the Superior Court to interfere with the arbitrator’s decisions was “strictly limited” to “those few circumstances” specifically referred to in that Act.  Applying that principle, the Court of Appeal held that there was no right of appeal from the arbitrator’s decisions ordering repayment and costs because those decisions were purely interlocutory and did not involve the final determination of the rights of the parties. 

However, the Court held that the arbitrator’s decision striking out the statement of defence was appealable, not because it was made without jurisdiction, but because it was unfair and resulted in the sellers not being given an opportunity to present their case, contrary to Section 46(1).6 of the Act. The Court noted that an order striking out a statement of defence has been held in Ontario to be a final order, and is therefore appealable under the Act.

Similarly, the Court of Appeal held that the final arbitration decision made without notice to the sellers was appealable because it also was a final decision, and because it was unfair and occurred without the sellers having an opportunity to respond to the allegations made against them.

The Court of Appeal held that the arbitrator had erred in striking out the sellers’ statement of defence because of their failure to comply with the costs award when compliance was neither “possible nor lawful”, and when payment of the costs award would have amounted to a preference over other creditors in the bankrupt estate.

This decision re-affirms the insistence by Ontario courts that they will only interfere with arbitral proceedings if a ground to do so is specifically set forth in the applicable arbitration statute. That aspect of the decision is a welcome re-affirmation of the simplicity of the Ontario statutory regime applicable to arbitrations.  The decision recognizes that until the arbitration proceeding is finalized, the courts have no role to play.      

Final and Interlocutory Orders

However, the decision does interject into arbitral jurisprudence in Ontario the debate about the distinction between “final” and “interlocutory” orders. The Court of Appeal has held that the reference in the Ontario Arbitrations Act, 1991 to “an award” means a “final award”, not an interlocutory or procedural award that decides interim issues leading to a final award.  

The distinction between “final” and “interlocutory” orders has a long and, some might say, tortured, history in Ontario procedural law. It is the basis for distinguishing between orders in the court system that can be appealed without leave (being final orders) and those orders for which leave is required (being interlocutory orders).  It appears that the present decision may allow an arbitral decision to be appealed if it qualifies as being a “final” award, even if it is not the last decision of the arbitrator which finally decides the dispute.

Arbitral award – challenging arbitral award – enforcement – conduct of arbitration

Universal Settlements International Inc. v. Duscio:  2012 ONCA 215

Thomas G. Heintzman O.C., Q.C., FCIArb                                                             May 15, 2012

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